The Harsh Reality of Deliberate Deprivation
It is possible to transfer a property into a trust, but the motivation behind the transfer is key, and it is a complex and highly regulated area. Local authorities are actively looking for cases of 'deliberate deprivation of assets'. This occurs when a person intentionally reduces their assets to avoid or reduce their contribution towards care home fees. If the local authority determines this was your motive, they have the power to treat you as if you still owned the asset during your financial assessment. There is no time limit on how far back a council can look into your financial affairs to find evidence of deliberate deprivation. Many mistakenly believe the seven-year inheritance tax rule applies, but local authorities can and do look back much further.
How a Financial Assessment Works
When you require permanent residential care, your local authority will conduct a financial assessment, or means test, to determine how much you must contribute. As of October 2024 in England, if your capital exceeds £23,250, you are responsible for paying the full cost of your care until your capital falls below this limit. The financial assessment includes your income, savings, investments, and in most cases, your property. If the council successfully argues that a trust was used for deliberate deprivation, the value of the property will be included in this assessment.
Potential Risks and Consequences of Using a Trust
Using a trust for this purpose is not the simple solution it may seem and carries severe drawbacks:
- Loss of Control: By transferring your property into a trust, you legally cease to own it. The trustees, even if they are family, are then responsible for managing the asset. You lose the right to sell the property or make decisions about it.
- Significant Costs: Setting up a trust is expensive and involves legal fees. Furthermore, trusts often incur ongoing administration costs. Ineffective trusts promoted by unregulated advisors can cost thousands and provide no protection.
- Tax Implications: Transferring property into a trust can trigger various tax issues. If you continue to live in the property after transferring it, 'Gift with Reservation of Benefit' rules may apply, meaning the property is still considered part of your estate for inheritance tax purposes. This could also affect your eligibility for the Residence Nil Rate Band (RNRB).
- Homelessness Risk: If you gift your home away, and relations with the new owners (e.g., your children as trustees) break down, you could find yourself without a home. If a trustee faces bankruptcy or divorce, your home could be at risk.
- Trustee Responsibilities: The individuals you appoint as trustees take on significant legal and administrative responsibilities. This includes registering the trust with HMRC and acting in the best interests of the beneficiaries.
A Comparison of Options: Lifetime Trust vs. Deferred Payment Agreement
| Feature | Lifetime Property Trust (To avoid fees) | Deferred Payment Agreement (DPA) |
|---|---|---|
| Effectiveness for Care Fees | Highly likely to be challenged as 'deprivation of assets'. | A legitimate, council-supported scheme. |
| Asset Ownership | You relinquish legal ownership to trustees. | You retain ownership; the council secures a charge on the property. |
| Risks | Deprivation of assets finding, loss of control, tax implications, family disputes. | Accumulating interest on the loan, eventual need to repay from sale of property or estate. |
| Costs | Expensive setup and ongoing administration fees. | Legal and administrative fees, plus accumulating interest. |
| Tax Implications | Can be subject to Inheritance Tax and Capital Gains Tax. | Generally simpler, as ownership remains with you. |
| Professional Advice | Absolutely essential from a regulated solicitor; many unregulated schemes are misleading. | You can apply through the council, but independent financial advice is recommended. |
Legitimate Alternatives for Protecting Your Assets
Rather than resorting to a risky trust, there are legally compliant and secure ways to approach care funding and asset protection. These require careful planning and professional advice:
- Deferred Payment Agreement (DPA): This is a formal scheme with the local council where they pay your care home fees, secured by a charge on your property. The loan is repaid after the property is sold or from your estate after your death. Eligibility rules apply.
- Protective Property Trust via a Will: For couples who own a home together, this is an effective estate planning tool. It ensures that if one partner dies, their share of the property is passed into a trust for the ultimate benefit of children or other beneficiaries. The surviving partner has a 'life interest' and can continue to live in the home. This legally protects that share of the property from being used to fund the surviving partner's care.
- Lasting Powers of Attorney (LPAs): While not directly protecting assets, setting up LPAs for both property and financial affairs and health and care decisions is crucial. It ensures a trusted person can manage your finances and make decisions if you lose mental capacity, including exploring care funding options.
- Specialised Financial Planning: Professional financial planners can advise on options like care annuities, which provide a guaranteed income to cover care costs. Other options may include investment bonds, though these require careful consideration.
- Maximising Benefits and Exemptions: Ensure you are receiving all eligible benefits. Certain assets and income sources may be disregarded in the financial assessment.
What to Do Next
Given the complexities and potential for severe consequences, the most important action is to seek expert, regulated legal advice from a solicitor specialising in wills and estate planning. They can assess your individual circumstances and help you find a compliant and effective strategy. Acting early is also vital, as last-minute transactions will attract more scrutiny from local authorities.
For more information on planning for future care costs, it is recommended to visit the official MoneyHelper website. They provide clear guidance on various funding options and the means testing process.
Conclusion
While the motivation to protect your family's inheritance from potentially high care costs is understandable, attempting to do so by transferring a property into a trust to avoid care home fees in the UK is a high-risk strategy. The strict rules on 'deliberate deprivation of assets' mean that such a move is likely to be challenged by the local authority, potentially invalidating your efforts and costing you thousands in the process. Secure, legitimate methods of asset protection and care funding exist, such as Deferred Payment Agreements and Protective Property Trusts, but these require careful consideration and the guidance of a qualified solicitor. Professional advice, sought well in advance, is the only safe and reliable path to securing your assets and ensuring your care needs are met.
