Care Home Fees and the Deliberate Deprivation of Assets – Word of Warning

Background

With these ever-rising figures, it is perhaps unsurprising to note that families are considering taking steps to reduce their assets in order to avoid or reduce possible care home fees in order to maximise what they can leave to loved ones. However, such steps do not come without risk and should be considered very carefully.

Under the current legislation, Local Authorities will pay care fees on a means tested basis where an individual’s assets fall below £23,250.  If assets exceed this amount then you are expected to fund your own care.  If assets are below £14,250 then the Local Authority will pay for all care fees without any contribution from the individual.  These figures are set to increase as of April 2020, following the implementation of the Care Act 2014, to £27,000 and £17,000 respectively.

In order to receive as much Local Authority assistance as possible, some families are considering mechanisms in which they can reduce assets (or at least the ‘appearance’ of assets). A commonly used method is to put an asset, normally a property, into trust.  This is a legal device by which such assets fall outside of any means tested assessment for care fees.

Deliberate deprivation of assets – what are the risks?

However, if the Local Authority considers a transfer of an asset away from a person’s ownership to be a ‘deliberate deprivation’ of that person’s assets then they have the power to challenge such transfer. A Local Authority will consider the motivation behind the particular transaction and whether the intention was to avoid or reduce the amount of care fees payable, whether you have a reasonable expectation of needing to contribute to care costs, and the timing of the disposal.

There is no time limit on how far the Local Authority can look back when deciding whether an individual has deliberately deprived themselves of assets.

Set out below are just a few  examples of the main risks involved when considering a transfer of your assets for the purposes of avoiding care fees:

• Perhaps the most immediate risk is that the Local Authority will include a notional assessment of the assets (for example, the home) and will treat you as still owning the asset for the purpose of the financial assessment.
• Once your remaining assets are used up, the Local Authority has the power to take enforcement action in respect of ongoing care fees. This might include reversing the transfer. This could be protracted, expensive and stressful.
• The Local Authority may choose to provide only a basic level of care, leaving you to fund the rest. The person who received your gift may not be willing to contribute. This can result in a breakdown of relationship between you and the person you gifted your property to. It can also mean that you don’t get the level of care that you require.

It goes without saying that, whilst it is human nature to want to protect our own assets and our loved ones, it by no means comes risk-free when looking at care fees.

Our recent experience

A client came to us recently on the cusp of signing paperwork, prepared by a financial adviser, which would have transferred her home into a trust run by a trustee company for the rest of her life, and which promised the administration of her estate to that company at an inflated fee. Under the Will they prepared for her she would have unnecessarily ended up with four different trusts, and the bulk of her estate was directed into the wrong trust. This was all under the guise of “protecting wealth from care fees and inheritance tax”. We advised the client on her true liability to inheritance tax, and on the pros and cons of trusts, and luckily this client stopped short of signing that paperwork.

If you or a family member are concerned about the possible impact of care home fees on your overall estate planning, or are looking at ways in which this could be reduced, you should seek legal advice prior to taking any action to be sure you avoid the risks highlighted above.