Funding Residential Care
The problem – myth and reality
Many people are worried that, if they had to go into care, their assets would be used up paying for that care, and nothing would be left to pass on to their children.
It is not true that, if you go into care, "the state" (or anyone else) will seize all your assets and leave you with nothing.
It is true that:
- if you go into care, you will either have to pay for it yourself or rely on means tested local authority funding
- if you seek means tested funding, you will not qualify if your income or assessable capital are over certain limits: the current capital limit is £23,250.
- the value of your house may well be treated as part of your capital (but not while it continues to be occupied by, e.g., your spouse).
No easy answers
You may be tempted to make yourself eligible for means tested assistance by reducing your capital, e.g. by giving your house to your children. Before doing so, you must be aware that:
- a gift to your children could leave you dependent on their goodwill, or create difficulties for you if a child died, divorced or went bankrupt (although these risks can be minimised by using appropriate trusts)
- capital gains tax problems can arise if a house is owned by people who do not live in it and other tax issues may need checking too (but again appropriate trusts can help)
- comparatively few people actually need to go into care
- the rules say that if you deliberately give away capital in order to qualify for assistance, you can be treated as if you still owned that capital: these rules are likely to become more rather than less stringent in future
Lifetime arrangements
There is no fixed limit as to how far back in time the authorities can go to challenge a gift which you might have made in order to qualify for assistance. However, they do have to show that the gift was made with that motive: the earlier the gift, the harder it is likely to be for them to do so.
Arrangements by Will
Suppose a husband and wife both own their home. If the husband leaves his share outright to the wife, and she goes into care after his death, then the whole house risks being treated as part of her capital for means testing purposes. If, instead, the husband makes a Will leaving his share on appropriate trusts for the benefit of his wife and others, then (under the current rules) his half share will not be treated as part of her capital. Furthermore, she cannot be treated as having deliberately deprived herself of that half share, because it was never hers to give away.
Insurance
Insurance policies to cover care costs are increasingly becoming available. Premiums depend very much on your particular circumstances, and it is important of course to check the small print. However, useful cover can often be obtained for surprisingly low premiums, even if you are already in care.
Advice from Stones
We will be pleased to assist by:
- advising whether gifts during lifetime or by Will are appropriate and what trusts can be used to reduce the problems caused by such gifts
- drafting the documentation for such gifts
- considering with you other arrangements to fund long term care and referring you to independent financial advisers as appropriate
- advising on the related area of nursing care and NHS funding in whole or in part.
For more information, please contact the Probate & Trust team on:
Exeter 01392 666777
Okehampton 01837 650200
June 2011