Care Costs And Estate Planning

The situation with regard to care home fees and the contributions that might be required is quite complicated, and is of increasing concern to many clients.

The starting point is that the law provides for means testing: when a resident cannot afford to pay full charges for the care home, an assessment is made by way of a means test of their ability to pay.

This means test assessment relates to both income and also capital.

The current threshold in the year 2023-2024 is £23,250. It was  , however, intended that this threshold be raised to £100,000 in October 2023, although this change has been anticipated for some time, and has yet to be implemented.

The assessment will generally only relate to the means of the resident and the council has no power to oblige a spouse or civil partner to take part.

The assessment

Currently if capital over the threshold is held, you will be assessed as a completely self-funded placement. All of your assets, including any overseas assets which can be realised, are counted as capital. Capital is valued at the amount a willing purchaser would pay, or the surrender value, subject to certain deductions. Any jointly owned assets are treated as divided equally unless otherwise evidenced, for example, by way of a Declaration of Trust.

Some assets can be disregarded, in certain circumstances. For example, a house may be disregarded indefinitely where it is occupied by a spouse or civil partner, or a dependent.

Staying on the right side of the law

If a local authority deems that there has been a deliberate deprivation of capital, i.e. assets have been disposed of with the motivation to avoid care costs, there are steps that can be taken by the local authority. These include placing a legal charge on a property and treating an asset as the ‘notional capital’ of the party who disposed of the same.

There is no limit as to how far back a local authority can look when determining if there has been a deliberate deprivation, however, obviously the longer since the gift was made, the more difficult it is likely to be for the local authority to establish that the purpose of the gift was to avoid a financial assessment.

There may also be tax consequences of giving assets away during your lifetime, for example, charges to Inheritance Tax, if you do not survive for a period of seven years after making the gift, and also potentially to Capital Gains Tax.

Equally if you dispose of an asset, for example, a property, but continue to retain the benefit of the asset, for example, by continuing to live in the property, the asset may still be considered to form part of your estate for Inheritance Tax purposes, so the gift will not necessarily be effective.

Will Trusts to mitigate the impact

One option to mitigate the potential impact of future care costs, and perhaps safeguard some of the value of your property, would be to create a trust in your will so that upon the death of the first co-owner of the property, the property does not automatically pass to the survivor and thereby become exposed to possible care home fee charges, should the survivor later require care.