In the UK there’s plenty of interest in sheltering assets from care fees right now – which is not surprising, given the average cost of care (£29,270 per year for a residential care home, or £39,300 per year if nursing is required, according to the Money Advice Service). Some have sadly been duped into putting their house into a so-called Asset Protection Trust to try and keep it out of the hands of the Local Authority – sometimes with disastrous consequences, as can be seen by the fall of ‘wealth management’ company Universal Wealth.
Even if your choice of Asset Protection providers isn’t a con artist, putting your house into trust to avoid care fees is quite simply a deprivation of assets. What does that mean exactly? It is where you deliberately give away your assets – ‘deprive’ yourself of them – by gifting them or putting them into trust, with the intention of putting them out of reach of the Local Authority. It is the intention behind making the transfer that is relevant. The Local Authority must consider:
Whether avoiding the care and support charge was a significant motivation;
The timing of the disposal of the asset. At the point the capital was disposed of could the person have a reasonable expectation of the need for care and support?; and
Did the person have a reasonable expectation of needing to contribute to the cost of their eligible care needs?
If the Local Authority deems that you have deprived yourself of assets that could otherwise be used to pay for your own care, the consequences can be severe.
So what can be done instead?
Firstly, consider the idea that you should pay for your own care. The money has to come from somewhere and with a population that’s living longer, UK Local Authorities are under increasing pressure to find funds for those who genuinely don’t have a penny to their name.
However, that said, you should not have to pay for care that you haven’t received yourself. Yet this is exactly what happens for too many people. A husband will die, leaving everything to his wife who needs care in later life. When it comes to performing a means test, almost the entire family wealth is up for grabs – down to the lower limit of £14,250. This just doesn’t seem fair.
Fortunately, there’s a way to preserve a chunk of the pot that is perfectly above board. Rather than leave your entire estate to your partner, you can give them a life interest in the family home – and in any other property you own such as a holiday let.
The effect of this is that after your death, they own 50% of the properties, and have a life interest in the other 50% (this can be an interest in possession – i.e. they can live in the property, or you might specify that they can benefit from the rents and profits if it is an additional property). If they need care, they’ll fund it out of their own share – but yours is safe.
You’ll need to own your home as ‘tenants in common’ for this to work, and you’ll need an experienced lawyer to draft an appropriate Will. Too many high street firms go for the standard Mirror Will approach which simply offers no protection at all.
In addition to sheltering your assets from care, you may also want to consider the various ways that you can keep them in the family ‘bloodline’. Too often, our children inherit and then lose a portion of that inheritance to divorce or creditors. With the right type of trust Will, this is avoidable – so why don’t more people take action? In our experience there are many misunderstandings about trusts – for example, people know that ‘exit fees’ have to be paid when money leaves the trust. However, it is less commonly known that such fees don’t apply when money is loaned from the trust.
You can find out more about protecting your assets at www.aprilking.co.uk.