Understanding the Care Fees Financial Assessment
When an individual requires long-term residential care, the local council performs a financial assessment, often called a means test, to determine who pays for care. This assessment considers the individual's income and capital, which includes savings, investments, and crucially, property. If capital exceeds the upper limit (currently £23,250 in England), the individual is expected to pay the full cost until their assets fall below this threshold. The value of the property is included in this calculation unless certain conditions are met, for example, if a spouse or dependent relative continues to live there.
Exemptions for Your Property
For the financial assessment, a property is completely disregarded in some circumstances, such as:
- A spouse or partner continues to live in the property.
- A relative over 60, or a relative under 16, lives in the property.
- A relative who is incapacitated lives in the property.
- A long-term carer who gave up their own home to provide care lives there, subject to council discretion.
It is important to remember that these exemptions only apply while the person is still residing in the property. Circumstances may change, impacting the property's protected status.
The Deprivation of Assets Rules
One of the most significant pitfalls to avoid is falling foul of the 'deprivation of assets' rule. This occurs when someone intentionally gives away assets, such as their home or savings, to avoid paying for future care costs. Local authorities can investigate such transfers and, if they determine the motive was to avoid care fees, can still treat the individual as if they still own the assets. There is no time limit on this and authorities can look back indefinitely, though the further back the transfer, the harder it is to prove intent. Signs of deliberate deprivation include:
- Giving large sums of money away.
- Transferring property ownership to a family member.
- Spending assets in a sudden, uncharacteristic manner.
Legal Strategies for Asset Protection
For couples who jointly own their property, changing the ownership structure can be a legitimate way to protect at least half of the property's value. When a property is owned as 'joint tenants', it automatically passes to the surviving partner upon the first death. By changing to 'tenants in common', each person owns a specific share of the property (often 50%), which does not automatically transfer to the survivor.
Life Interest Trusts
Once ownership is tenants in common, a Life Interest Trust can be set up within a Will. This allows the first partner to die to place their share of the property into a trust. The Will grants the surviving partner a 'life interest', meaning they can continue to live in the property for their lifetime. However, that half of the property is now owned by the trust and is not considered part of the survivor's assets in a financial assessment for care fees. Upon the second death, the trust's share passes to the named beneficiaries, for example, the children.
Other Trust Structures
Another option is a Discretionary Trust, which is typically more complex. The trustees have discretion over how to distribute assets to beneficiaries. The settlor (the person creating the trust) transfers assets, including the property, to the trust. If this is done legitimately and not as a deliberate deprivation of assets, it can protect against care fees. However, this is a highly complex area requiring expert legal advice to avoid potential tax issues and challenges from local authorities.
Financial Products and Deferred Payments
Besides trusts, other financial avenues exist to help manage care costs without forcing an immediate property sale:
- Deferred Payment Agreements: A scheme offered by local authorities, which allows you to defer payment of care home costs against the value of your property. The council effectively gives you a loan, which is paid back when your home is eventually sold, or from your estate after death.
- Care Annuities: Also known as immediate care plans, these are insurance policies that convert a lump sum into a guaranteed, regular income to help pay for long-term care fees. This is a complex financial product and requires advice from an independent financial adviser.
- Equity Release: This allows you to release equity from your home in a tax-free lump sum or a regular income. It can be used to pay for care, but it is a major financial decision with significant risks and should only be considered after impartial financial advice.
Potential Downsides and Risks
While these strategies can be effective, they come with risks. Gifting a property or placing it into a trust means you lose ownership and control. A disagreement with family or a beneficiary's bankruptcy or divorce could put the asset at risk. Local authority scrutiny is high, especially if transfers happen close to the time care is needed.
Comparison of Protection Strategies
| Strategy | Pros | Cons | Key Consideration | Best for |
|---|---|---|---|---|
| Tenants in Common + Life Interest Trust | Protects half the property's value; allows surviving partner to live there. | Trust must be set up via a Will; only effective on the second person needing care. | Must be arranged while both partners are alive and capable. | Couples who own their home jointly and wish to protect a portion for their children. |
| Lifetime Discretionary Trust | Potentially protects full value of the property. | High setup cost and complexity; local authority challenge for deliberate deprivation risk is high. | Strong risk of being considered deliberate deprivation. | Individuals with complex estates, done many years in advance with clear intent other than avoiding fees. |
| Deferred Payment Agreement | Avoids immediate property sale; less complex than a trust. | Builds up debt against the property with interest; can reduce inheritance significantly. | The council places a legal charge on the property. | Those needing care urgently who want to avoid immediate sale. |
| Care Annuity | Guarantees a regular income for care costs. | Requires a significant lump sum investment; returns vary based on health. | Requires expert financial advice to assess suitability. | Individuals with substantial liquid assets seeking guaranteed income for care. |
Conclusion: The Importance of Early and Expert Advice
There is no one-size-fits-all solution for protecting your home from care fees. The 'seven-year rule' is a myth relating to inheritance tax and does not apply to care fees. The crucial element is intent; any action perceived as deliberate deprivation will likely be challenged. The most robust strategies, like restructuring ownership via tenants in common and creating a life interest trust, must be planned and executed well in advance of any foreseeable care needs. Given the legal and financial complexities, consulting a solicitor specialising in later-life planning is essential. Early professional advice ensures your actions are legally compliant, minimises risk, and protects your assets for future generations. The Society of Later Life Advisers (SOLLA) is a useful resource for finding accredited professionals who can offer impartial advice tailored to your circumstances.
Getting Started: Steps to Take
- Seek Professional Advice: Arrange a consultation with a solicitor who specialises in wills, trusts, and later-life planning.
- Conduct a Care Needs Assessment: Start the process with your local council to understand your needs, as this precedes any financial assessment.
- Review Property Ownership: If you are a couple, check if your home is owned as joint tenants or tenants in common, and consider a deed of severance if appropriate.
- Explore Trust Options: Discuss a Life Interest Trust or other suitable structures with your solicitor to determine the best fit for your situation.
- Look into Financial Products: Consult an independent financial adviser about products like deferred payment agreements or care annuities.
- Understand Deprivation of Assets: Be clear on what constitutes deprivation and why early planning is critical to establishing non-avoidance intent.
- Create Lasting Powers of Attorney: This ensures your finances can be managed by a trusted person if you lose capacity, which is vital for any asset protection strategy.
