With the cost of care homes ever increasing we are experiencing an increase in clients expressing concerns about protecting their capital from potential future care costs.
Whilst the concern regarding care costs increases, recent studies have shown that only around 1 in 4 elderly adults in the UK will require residential care and that the average length of stay in care is around 2 years. If you do require residential or nursing care, the Local Authority has a duty to provide a place in a home for you and will carry out a number of assessments to determine the level of care required and who should be liable for the cost.
When carrying out the financial assessment the Local Authority will look at both an individual’s income and savings. Income, such as pension payments, will be considered in the first instance. Where the individual’s income is insufficient to meet the accommodation costs, their capital will also be assessed to meet the balance of costs. The current levels are as follows:-
- If an individual has less than £18,000 of capital, their accommodation costs will be met by the Local Authority.
- If an individual has more than £28,750 of capital, they will require to pay the entire costs.
- Where an individual has capital between £18,000 and £28,750, they will be required to cover their costs either all or in part, depending on the scale provided by the Local Authority, until such time as the capital depletes to £18,000.
Therefore, where an individual has a modest income and owns their house, it is highly likely that they will be assessed as ‘self-funding’. In this case, it often means that the property would either require to be sold to fund the cost of care or, the Local Authority may agree to contribute towards the care home fees in return for a charging order being placed over the home to allow them to recover their contributions from the individual’s estate following their death.
There are allowances available to assist with the personal and nursing element of care home fees. Such allowances are available to those over the age of 65 and who have been assessed as having personal or nursing care requirements. The current level of these allowances combined is around £280 per week.
There are ways in which capital can be protected from being used to fund potential future care costs. You may think that the simplest action you could take is gifting some of your capital, such as your house, onto those loved ones who you ultimately wish to inherit your estate. As the legislation stands at present, if such a gift was made and you did not require residential or nursing care within 6 months of making the gift, the local authority could not recover the value of the gift from those now in receipt of it. The local authority can however, even after the 6 month mark, add the value of the gifted capital back into their assessment when determining the value of your estate, if they are of the view that the gift was made to deliberately deprive your asset position to obtain financial support towards care home costs.
There are considerable risks however when making an outright gift of your property to an individual that we urge you to bear in mind. For example, if the individual fell into financial difficulties, it may be the case that the capital gifted to them would require to be used to recover their debts. Or, in the event that the individual runs into matrimonial difficulties, the property may be taken into account in the division of any matrimonial property between the individual and their spouse.
Rather than gifting your house or any other assets to a particular person, you may wish to consider placing assets into a Trust. Putting assets in Trust affords more protection as it is unlikely that the Trust will run into the difficulties noted above. There are different types of Trust arrangements and the suitability of those will depend upon the individual’s circumstances. A common form of Trust used is known as a Liferent Trust. If you are a married couple that own your own property, by reviewing your Wills, it is possible to protect part of the value of your property from care home fees using a Liferent Trust in your Will. While this only protects part of the value of your property it is not as risky as an outright gift and once the property is transferred into the Trust the survivor of you will enjoy the use of the property as before. The Trustees are responsible for the running of the Trust and when the Trust comes to an end ownership will pass to your nominated beneficiaries. If, however, both of you go into care it will not provide any protection against a Financial Assessment at this stage.
There are a variety of options available and if you would like to discuss which one is best for you and your circumstances please contact a member of the private client department.
Ross Cargill is a Senior Solicitor in our specialist Private Client team. If care costs are a concern to you and your family, and you wish to discuss the potential options available to you, we would urge that you seek advice at the earliest possible stage. You can contact Ross or any member of the Private Client team on 03330 430150.
