Protecting your assets
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.
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) of more than £23,250 has to fully fund their own care entirely, and anybody with over £14,250 has to make contributions to their own care.
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 residential care home fees.
Protecting our clients’ assets from the threat of residential care fees is central to our business, and indeed one of the single biggest reasons why people initially come to us is to obtain specific advice on how to best achieve this.
We can advise on 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.
Simply giving 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 “deprivation of assets”. They will then have the power to treat you as if you were still the owner of that property and 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 use for inheritance tax purposes.
The best time to prepare for residential care fee mitigation is whilst man and wife are both still alive. Any married couple can use a straightforward mirrored Will to 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 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).
However a simple trust in a married couples Wills can go a long way to resolving this issue. 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, and that the children (or other beneficiaries) do not take actual possession of the property until the couple are 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” means that each party owns one half of the property independently of the other, and that their half of the property will therefore form part of their 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.
Get in touch…