The family inheritance: eaten by care fees
Asset Protection Series – Part 1
Receiving care in old age from the NHS or private services can be extremely expensive. For many, it can eat up all their lifetime savings, leaving very little to pass down to family on death.
If you have savings of over the upper threshold (£23,250), you must fund your care entirely. This will usually include your property, which will of course catch a huge amount of the population! It is only if you have less than this will the local authority contribute towards your care costs.
There are certain situations in which your home may be disregarded from the council’s assessment of your finances. For example, if your spouse or someone over the age of 60 still lives in the property, the home is disregarded.
However, if you leave your home empty to go into residential care, it is highly likely that the value of the home is fully ‘accessible’ by the local authority for payment of your care fees. The property may then need to be sold and there is a chance that all the cash could be used to pay for your care.
Care home fees can cost between £30,000 and £60,000 per year, sometimes more. Spending five years in care could swallow up £300,000 of savings.
So how can you protect the house or other assets?
There are ways of protecting assets from care home fees. It must, however, be borne in mind that any actions by you to protect your own assets from care fees you may incur are highly likely to be deemed a ‘deliberate deprivation of assets’ and therefore clawed back by the local authority. Unless of course these actions are taken many years before any care requirements are foreseeable. For example, if in your retirement you were to gift your home to your adult children or into trust, this would simply be unravelled if you required care fee funding in the future – even if this is years later! Likewise, many asset protection schemes do not work and, again, are unwound by the local authority.
There is something that you can do; and this best serves people who own property with their spouse/civil partner:
Many couples own their house as joint tenants which means that should either of them die, their share of the house passes automatically ‘by survivorship’ to the surviving co-owner. If instead, however, they ‘sever’ their joint tenancy to hold their property jointly as ‘tenants in common’, they are able to leave their respective shares in a particular type of trust, on death, which enables their surviving partner to continue living in the house without ‘owning’ the entire property in the eyes of the local authority – this is because the deceased’s share is owned by the trust.
The trust’s proportion of that house if therefore protected from care fees.
This type of trust is an interest in possession trust – often referred to as a Life Interest Trust.
The same can be done of cash or other assets – the deceased can leave their share of any asset (if it is indeed disposable by Will) into a Life Interest Trust such as this. The surviving partner (known as the ‘life tenant’) is entitled to the income produced by the investments – just as they are entitled to live in the property rent-free. The capital is preserved for the ‘remainder beneficiaries’ which is often the children. (This type of trust can also be incredibly useful and highly appropriate for people who have children from a previous relationship and want to provide for their partner yet ensure their children still inherit. We will discuss this in more detail in Part 3 of this series on Asset Protection).
This paper is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice. Please speak to a member of our team.