Care fees and the family home
Care fees are often an emotive issue for clients who feel that their assets are being taken to pay for care that should be provided on the basis of contributions they have made to the system during their lifetime.
Unfortunately, many people find themselves in a position where it is too late to start looking at asset protection planning. The best approach is always to act sooner rather than later.
The cost of care fees will vary geographically and is dependent on the extent of the care you require. In any event, it is not surprising to see invoices in excess of £30,000 per year for such care.
When I talk about care fees planning with clients, many of them believe that this will involve gifting away assets or wrapping them up in difficult lifetime arrangements. In fact, there are certain regimes that do not require any dealings with the assets in lifetime.
One of the most important tools in care fees planning and asset protection is a Will. In particular, Wills incorporating Right of Occupation Trusts can be very effective. However, before I discuss this particular point, I feel it might be useful to provide a background to care fees and the family home
Do I have to pay for my care?
If you have assets of over £22,500 then you will be required to pay for your care if your care needs are not sufficiently high to cause you to qualify for NHS fully funded care.
In this respect, it is very important that you make sure you have received a full care assessment. This care assessment should be completed before you or your relative enters care accommodation.
Do I have to sell my home to pay for my care?
If you have a spouse who is in occupation of the property then your home is excluded from assessment. There also other exclusions that might apply if you have a dependant or a relative in occupation of the property and whether or not the exclusion applies depends on the age and circumstances of the particular individual.
What about property owned jointly with another person?
If the property is owned jointly then it is necessary to determine whether you share of the property has a value for the purpose of a care fees financial assessment. The value is not simply determined by, for example, a half share of the total value of the property. The test to be applied for valuation is “what a willing buyer would be willing to pay to a willing seller on the open market”. It is conceivable that a willing buyer for a half share in a property might not exist. Therefore, the value of your share in the property could be as low as nil value. This means that the sale of the property is not necessary.
Having provided you with a little background to care fees and family home, we can now consider Right of Occupation Trusts, which provide a particular planning opportunity for joint property owners.
Generally, especially where couples are concerned, the home will be owned as Joint Tenants. This means when the first person dies, the whole property passes automatically to the survivor. This can be undesirable from a care fees perspective.
In illustration of this point, I will use a worked example:
Mr & Mrs Client
• Mr & Mrs Client own the property 1 Legal Close in the sum of £300,000. They only have other savings of £10,000.
• They have two adult children Michael and Sarah.
• Mr Client has been diagnosed with dementia and is now going into a care home.
• He has received a financial assessment and has been told that the local authority will pay his care fees because he does not have any other significant assets aside from the property 1 Legal Close. This property is exempt from assessment because Mrs Client remains in occupation.
• Unfortunately, 3 years later, Mrs Client dies and the property passes to Mr Client absolutely. The property now becomes an assessable asset for the purpose of a financial assessment.
• Mr Client is reassessed and the local authority informs the children that Mr Client must now start to pay for his care. Accordingly, the children arrange the sale of the property and the proceeds are used to fund Mr Client’s care fees. The care fees are calculated at £3,000 per month.
• Mr Client survives Mrs Client by 6 years and £216,000 of the proceeds of sale is used to fund Mr Client’s care.
• On Mr Client’s death, Michael and Sarah stand to receive an inheritance of £42,000 each.
If Mr & Mrs Client had engaged in estate planning, they could have prepared Wills to safeguard against this eventuality. The Wills could have included Right of Occupation Trusts.
Under the Right of Occupation Trust arrangement, when Mrs Client predeceased Mr Client, her half share of the property would have passed to her two children under the terms of her Will and not to her husband as was the case under the Joint Tenancy. This would have protected her half share in the property from care fees and resulted in an additional £150,000 inheritance for the children.
The Right of Occupation Trust is, therefore, a very useful and flexible way of protecting assets from care fees.
The key point is to act sooner rather than later to ensure that appropriate estate planning measures are in place.
Author: Graham Fuller
Published: 23 June 2008