The problem
There is a lot of confusion surrounding the question of care home fees which does not help in planning for the future. If you move into a care home you will be charged a fee by the proprietor be that a private owner or the council. Your contract is with the home. If you do not pay the fees charged by the home (for example, because you cannot afford to do so due to lack of cash but refuse to sell your property) then the home may sue you for the outstanding fees. This is no different from a landlord suing a tenant who does not pay the rent as it becomes due.
Fees typically start at over £400 per week for residential care and over £500 per week for nursing care, and can often be substantially higher. Those who are asked to pay for all of their own care home fees will therefore see anything from £20,000 to £30,000, and possibly even more, of their assets disappear each year.
The Courts have confirmed that if the care received in a home is the sort of care that should be received in hospital, then the NHS must cover the cost. The Government's response to this Court decision was to introduce the Registered Nursing Care Contribution (RNCC) which, instead of meeting the full cost of the care, simply pays a fixed weekly amount at either a low, medium or high rate dependent on the individual's assessed nursing care needs. However, a resident in a care home is still entitled to request an NHS Continuing Care Assessment which, if successful, will mean the full cost of the care is paid by the Health Authority.
Assuming NHS Continuing Care is not applicable, any remaining fees must still be met by the individual. Where he or she does not have sufficient income to meet those fees (as is often the case) it will be necessary to use any available capital which usually results in the elderly person being told that his or her home needs to be sold and using the sale proceeds to fund the care home fees. A house often represents someone's life savings and to see these draining away rather than being available as an inheritance is naturally upsetting.
Financial criteria for benefits
A resident of a care home with capital of £21,500 or more will have to fund his or her own care - property owners will therefore invariably have to meet any care home fees in full without any financial assistance. However, for those with capital between £13,000 and £21,500 help is at hand through the Local Authority/Social Services Department and in a smaller way from the Department of Work and Pensions (DWP, formerly the Department of Social Security). This financial assistance is a contribution towards the payment of any care home fees as they become due.
Once your capital falls below the crucial £13,000 mark, the Local Authority will make their maximum contribution. Please note that the Local Authority do not simply ‘pick up the bill’ in full, they will instead pay their maximum contribution - this means that there may still be a shortfall to be funded by you or your family, which is called a ‘Third Party Top-up’ although advice should be sought before entering into such an agreement with the council. The alternative may be that you have to move to a less expensive care home. The financial assistance offered by both the Local Authority and DWP is separate and distinct. Separate claims will need to be made and different financial limits often apply. The practical downside of this is that two sets of forms need completing with, usually, the same information!
Regardless of which authority is involved, each will be assessing your available capital. This will include your cash and investments (although certain types of investment must be ignored) and may include the value of your house. Whilst your house will almost certainly be ignored in any financial assessment if a spouse continues to live there, its value will be included if it is empty or if the only occupant is a person under 60 years of age. Whilst the Local Authority do have a discretion to ignore the value of a property where a financial dependant under the age of 60 is living there (for example, a child who has lived with you for many years), there is no guarantee that the discretion will be exercised (or even mentioned!). In such circumstances, some legal assistance can go a long way to ensuring the Local Authority consider their discretion properly.
Your available capital will be taken into account in any financial assessment. This means the authorities are entitled to take account of any jointly held assets, or rather your share of those assets. The basic rule is that you will be deemed to own an equal share of any asset (such as a bank account or property) with the other co-owner or owners unless an alternative division can be proved to exist.
With a joint bank account, the calculation of your share will be simple. The situation is not so straightforward with a property. For example, if a second property is owned together with another person and is worth £100,000, the value to be declared is not simply 50% (that is, £50,000). A sale of the house cannot be forced without a Court Order if the other owner does not wish to sell. As such, the authorities can only take account of the actual market value of your share. 50% of a £100,000 property which can neither be occupied nor sold on by the person who buys it would not be worth £50,000 therefore the value would need to be reduced to reflect this, possibly to nil. Again, legal assistance to point this out to the authorities may be beneficial as might a professional valuation of the property taking account of the circumstances.
Planning for the future - what can you do?
If one spouse needs care in a home whilst the other remains in the matrimonial home then the value of that property will almost certainly be ignored by the Local Authority in any financial assessment (be it due to the fact that the spouse remaining in the property is aged over 60, or that the Local Authority have exercised their ‘financially dependent relative’ discretion to ignore the property). The most common problem is where one spouse dies leaving the survivor requiring care in a home, since in those circumstances the property is empty and will be taken into account. One possible solution is for the husband and wife to make new Wills in which they do not leave each other their share in the matrimonial home as an outright gift. Instead, the Wills would state that the owners of the deceased spouse's one half share of the property would be the executors to the Will who would hold the property (and its proceeds of sale) in trust for the surviving spouse thus protecting his or her occupancy of it. Eventually, when the surviving spouse moves out of the property (be it to move into a care home, or in the event of his or her death) the executors would pay the proceeds of sale to the ultimate beneficiaries (such as the children of the family). Please note that such Wills need to be carefully worded and may well require an amendment to be made to your Title Deeds therefore expert legal assistance should be obtained as opposed to attempting "DIY" Wills.
Of course, if a couple amend their Wills in the way suggested above then this will not help protect their assets in the event that both of them require care in a home at the same time. So, the alternative arrangement is a lifetime gift of your property. Your house would be transferred to a Trust (rather than your children thereby avoiding various difficulties to include your children having to pay Capital Gains Tax on the increase in the value of the property). The Trust would be worded so that your occupancy of it cannot be interrupted and specifying who the final beneficiaries would be. Careful thought needs to be given as to whom to appoint as Trustees - children should rarely be given this role since their own views and wishes may influence how they act in that role. You may therefore like to appoint your solicitor, although any other wholly independent person can be considered. In transferring the house into the Trust you will no longer own it and so there is a slight possibility that you will no longer have it included as available capital. Transferring assets in this way may enable you to claim public funds which you would not be entitled to without the transfer.
The authorities are aware that the system might be abused and are therefore becoming increasingly keen to query situations where such gifts have occurred. There is a common misconception that if a gift is made (for example a house) it will not be looked into any further by the authorities after a certain period of time. This is not so. The basic rule is that if an individual makes a gift of any asset with the intention to avoid payment of care home fees then the Local Authority can still assess that individual as though the gift had never been made regardless of how long ago the gift was completed. Given that there is no time limit beyond which a gift can be said to be safe, it is vitally important that some good reason (other than the avoidance of care home fees!) be given for making the gift for its value to be ignored in any financial assessment. It is therefore suggested that legal advice be sought so that your personal circumstances can be considered on this point before any gift is contemplated.
There are various other methods of seeking to have the value of your house ignored in any financial assessment (such as a child who lives with you buying, at full market value, a small percentage of the property; or a child or children who do not live with you buying the entire property from you at a reduced price in the same way that an "Equity Release" company would) but these methods need quite specific family circumstances to exist before they would be viable, and again bring with them their own peculiar problems. Again, the best possible solution is to speak to a legal expert in this field in order to discuss the alternatives and determine which one suits your specific circumstances best.
Please note that many of the suggested solutions in respect of care home fees planning do not assist when it comes to seeking to reduce a potential Inheritance Tax (IHT) liability. Indeed, if you feel that you have a taxable estate (which currently means that you have total assets in excess of £300,000) then we would advise looking at IHT planning measures possibly combined with insurance schemes as the optimum care home fees planning method.
All of the information contained in this guide is intended as just that - a guide. Many of the schemes put forward as possible solutions depend very much upon the individual's personal circumstances, and involve further considerations which are not mentioned or only touched upon briefly here. We therefore urge you to seek legal and financial advice before taking any further steps.
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