Wealth

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Should I put my home in trust to avoid care fees?

If you, or a loved one, has to go into care, who pays for it? the average cost for a nursing home is a whopping £55,000 a year, £35,000 for accommodation and food, and £20,000 for nursing care. If you think that local authorities pick up the bill, think again

There are about 400,000 people in residential care, and that figure is expected to hit 750,000 in the next 20 years. More than half the people in care now pay the entire cost themselves. Last year, it was estimated that about 49,000 had to sell their homes to pay residential care bills

The current system

Any help the local authority gives is means-tested and the majority of people are left to fend for themselves. If you have assets of more than £23,250, you’ll receive no help from your local authority. The test includes the value of your home — unless your spouse is still living there

If your assets are worth more than the threshold, you will have to pay for the full cost of care yourself. Under current rules, housing wealth is disregarded for the first 12 weeks after you enter a care home — to give you time to put your property on the market

Aren’t there new rules?

The Care and Support white paper and progress funding report, published last week, have been criticised for failing to tackle the crisis over long-term care.  While accepting in principle the recommendations of the Dilnot reportto cap the amount people have to pay for care over a lifetime and raise the means-testing threshold, the white paper fails to set out plans for funding reform. Rather, this is to be looked at in the context of the comprehensive spending review in 2013. Supporting the principle, but declining to address how this might be delivered in practice feels like something straight out of Yes Minister; it would be funny if it wasn’t so tragic

The government is consulting on plans to introduce a cap on care costs in an individual’s lifetime. However, this would cover only nursing care, not residential costs and food. So with the (Dilnot proposed) £35,000 cap, the total bill for a four-year stay in a residential home would fall from £170,000 to £149,000

However, ther’s no guarantee that the cap will be £35,000. If the cap were, for example, £75,000, only those who remain in a residential care home for more than 5 years would benefit, vastly reducing the cost for the government. Figures included in the white paper show that a £100,000 cap would cost the government only £500m by 2020, compared to £2.7 billion for a £35,000 cap. Which way do you think they’ll go?

The government is also considering raising the wealth threshold, at which you start paying your own care fees once the cap is exhausted, from £23,250 to about £100,000. However, given that the average house costs £162,417, according to the latest Halifax house price index, most homeowners would still find themselves having to pay for their own care — at least initially

Neither proposal is likely to be in place until 2018 at the earliest. The white Paper also backed a ‘deferred loan scheme’, first proposed by the Royal Commission a decade ago, to be made available from 2015. Those who need to pay for residential care will be able to apply for the open-ended loan, to be repaid — with interest at the rate of inflation when they die — by the sale of their property!

So, don’t hold your breath

The full White Paper is available here, or what the Government calls an ‘Easy Read’ version (=simpleton’s guide) here

What can I do about it?

One increasingly popular mechanism being touted by financial advisers is to put your home into a trust. Doing this will, in theory, keep it out of the clutches of your local authority. But beware; if you do this, o give away assets in any other manner, right around the time you find out that you need care, may well be regarded  by the council as a deliberate ‘deprivation of assets’ and they will then refuse funding

Councils vary enormously in the extent to which they will investigate arrangements you have made that might be regarded as hiding assets or “deliberately depriving” the authority of them

Some will take your word. Others will look closely at how long ago you gave away property or put it into a trust. Cash-strapped local authorities are increasingly likely to challenge any apparent attempt to avoid paying the fees

Under regulations on the deliberate deprivation of assets, councils can still include assets held in trusts if they believe somebody has deliberately attempted to shelter them from means-testing

Be aware that, while putting the house into trust (or simply giving it away to your children in good time) might well keep it out of the means testing equation, if you continue to live in it rent free it will be treated as ‘Reservation of benefit’, which means that you will be treated as if you still owned it for Inheritance Tax purposes

Or you could consider……

Many couples don’t realise that they may be able to take the home out of the care equation altogether by altering the way in which it is owned. Most couples buy a property as ‘joint tenants’, which means on the death of either, their share is automatically transferred to the other. But for a small fee you can change the ownership to ‘tenants-in-common’, which gives either party the right to bequeath their share to whomever they like. If on the death of the first spouse their half of the home is passed to the children, or into a trust, then it’s possible that the whole home may be disregarded should the surviving spouse need nursing care at a later stage

This because the current guidelines state that councils are supposed to look at the market value of the home. It could be argued that this is nil if half is owned by a third party that is unwilling or unable to buy out the other owner and has no wish to sell their stake. Be aware, though, that these are guidelines and there is no guarantee the local authority will interpret the rule this way. But even if this fails to take the home completely out of the equation, at worst just half its value will be taken into consideration when assessing your ability to pay

Split your savings

Separate any joint savings and reduce the sums local authorities can means test

Thanks to the complexity of the rules, a husband and wife with £100,000 in a joint account would see the local authority take up to £54,000 if one or the other went into a care home before means testing, and as much as £72,000 in total. If you split the accounts so there’s just £50,000 in each, the local council can take just £27,000 from one

Where to get help

Negotiating the care system can be daunting, but there’s plenty of help at hand. The Payingforcare website (payingforcare.co.uk), which was launched last year by Partnership, the annuity specialist, provides impartial information on all aspects of social care funding, including how to liaise with local authorities. It can also help you find a qualified financial adviser in your local area

Getting independent financial advice is crucial. Look for a care fees planning specialist who is qualified in this type of advice. They should hold the Later Life Adviser Accreditation and be a member of SOLLA (Society of Later Life Advisers). Search for an adviser at societyoflaterlifeadvisers.co.uk

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User Responses

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  1. Mike Clinton

    July 16, 2012

    It is pretty disappointing that the Government didn’t deal with the unfair funding system that severely disadvantages private residents of care homes in their recent announcements on social care. The resulting ‘limbo’ that people find themselves in could last for many years.
    One strategy that people should adopt now to save on care home fees is to negotiate the cost of their care before they move into a home. Local councils always negotiate with care homes and on average save £100 a week. Private residents hardly ever negotiate and end up paying more for exactly the same service. I’ve had plenty of experience of doing this and it works

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