How to avoid care home fees
One of the biggest fears our clients convey to us is the threat of losing their assets (particularly their house) should they end up in long term permanent residential care. Find out how you can protect your assets and learn how to avoid care home fees by following our simple advice.
The need for long term permanent residential care, and the funding of that care, has become a massive problem for all of us.
Approximately 130,000 people start to require some form of care each year.
One in three women over 65 and one in four men over 65 will eventually need care.
Statistics indicate that almost 10 million Britons (approximately 17% of the population) are expected to live beyond the age of 100.
The average cost of residential care is approximately £30,000 per year.
Currently, anybody with assets (including their house) and are moving into a care home, who have more than £23,250, has to fully fund their own care entirely at full cost. Anybody with over £14,250 has to make contributions to their own care home costs.
At the 1997 Labour Party Conference Tony Blair said: “I don’t want a country where the only way pensioners can get long-term care is by selling their home.” However, since then approximately 20,000 houses per year have been lost, and are currently being lost to fund nursing home fees.
What is deprivation of assets and why do I need to avoid it?
Individuals will often deliberately reduce their assets, such as properly, money, and income to avoid care home fees. When/if it comes to you paying for your own care your local council will do a ‘means’ test to calculate how much you need to pay towards it yourself. However, if someone has been found to deprive their assets, you could find yourself in financial ruin.When the council conducts a ‘means’ test they’ll also ask you these questions.
- The time the individual got rid of the property or money in relation to when they needed or may need care and support.
- Whether there was a significant reason for giving the individual to give away the home or reduce savings.
Other reasons that could be perceived as deprivation of assets are the following:
- using savings to buy possessions, such as jewellery or a car, which would be excluded from the means test.
- transferring the title deeds of your property to someone else.
giving away a lump sum of money.
- suddenly spending a lot of money in a way which is unusual for your normal spending.
- gambling the money away.
If your local council thinks that you have deliberately reduced your assets to avoid care home fees, they may still include the value of the assets you no longer have when they do the means test.
Protecting your home from care home fees
Protecting our clients’ assets from the threat of residential care fees is central to our business. This is one of the single biggest reasons why people initially come to us. To obtain specific advice on how to protect assets and avoid paying for care homes. For example; the individual’s family home, so it can be passed to next-generation family members.
We can advise upon a financial assessment of the options available to our clients to help to protect their assets from the impact of residential care fees. Simple and inexpensive measures such as creating will trusts can potentially save tens of thousands of pounds and avoid care costs.
Simply giving the property away will not protect you from residential care fees. If you transfer your property to another person or sell it to them below the true market value, the local authority can deem this to be deliberate deprivation of assets. They will then have the power to treat you as if you still have ownership of your home. They can still take it into account when assessing you for the payment of your care fees. There is no time limit on how far they can look back. Although, many people mistakenly confuse this with the seven-year rule which HMRC uses for inheritance tax purposes.
The best time to prepare for how to avoid care home fees is mitigation is whilst man and wife are both still fit and healthy. So, any married couple can use a straightforward mirrored Will. This will dramatically reduce the financial impact of the cost of care upon their estate.
The local authority must ignore the value of your property if your spouse is still alive and lives in your property. Unfortunately, however, most married couples traditionally leave everything to each other on the first death. So, that ultimately one of them will be widowed and will own their property outright as the sole surviving owner. From that day on it will be taken into account if residential care becomes necessary, and its value can be entirely swallowed up by care costs. (minus the modest threshold allowances referred to above on this page).
How to create a will trust
However, a simple trust in a married couple Will can go a long way to resolving the issue of how to avoid care home fees. This is because each spouse can leave their half of a property not to each other but directly to their children (or other beneficiaries).
All they need to create in the Will trust is a straightforward arrangement. Stating, that their spouse can live in the property for the remainder of their lifetime. So, that the children (or other beneficiaries) do not take actual possession of the property until the couple is both deceased. This means that on first death the survivor will be able to remain in the property unaffected as though it was their own, but would only actually own half of it. If the survivor goes into care it will only be their half of the property. Which would be deemed to belong to them when being assessed for payment of fees!
To make a Will in this way a couple would need to adjust the way they own their property from “joint tenants” to “tenants in common”. Something we can easily arrange whilst making their Wills. The distinction between these two types of ownership is very simple. Owning as “joint tenants” means that both parties own the property together and that on first death it will automatically pass to the survivor of them. Owning as “tenants in common”. This means that each party owns one half of the property independently of the other. That their half of the property will, therefore, form part of the estate of their death and thus will be controlled by their Will.
Please also read our page on Lasting Powers of Attorney. As they are also an easy mechanism which can give a family a huge amount of control over what goes on during the care process, and how it is to be paid for.
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