22 May, 2008
A common concern amongst people these days is what will happen to their assets if they have to go into local authority care, in particular the family home. Many are under the impression that the family home can be sold from under their feet and they will have no assets to leave to loved ones. Depending on the level of assets, some people are required to pay outright for care home fees, some are required to make a contribution and some pay nothing at all. Before a person moves into a care home on a permanent basis, they should have a financial assessment with the local authority to assess the level of funding they require.
The local authority will require a person to pay the full cost of care if they have capital over £22,250.00. This will often include the family home. People with assets between £13,500 and £22,250.00 are required to pay a contribution. Any assets with a value of less than £13,500 will be ignored. The family home may not be taken into account as capital if there is someone still living in the property, for example, a spouse or civil partner or other close relative over 60 or under 16. The value of the home is also disregarded if the person is only residing in a care home on a temporary basis.
One common misconception is that the family home will automatically be sold and the sale proceeds eaten up by care fees. If the family home is being treated as capital, it is possible that the local authority could agree some sort of deferred payment scheme so that the home does not have to be sold to pay for care fees. The level of contribution they would have to pay would be the same as if their home was not treated as capital for the financial assessment. If the house is sold at a later date the money would be have to be paid back to the local authority. However, it is up to each individual local authority as to whether they enter into this type of scheme.
People often think that giving away property to their children is a cast iron solution to this problem. Believing they can avoid paying care home fees as the property is no longer in their name. If it can be shown that the reason behind the transfer was to avoid paying care home fees, the value of the home may still be considered when it comes to financial assessment, defeating the object of the transfer. There may also be tax implications of such a gift. For example, if they give away their property to children but continue to live there, they can be regarded as having the benefit of the property. The value of the property could then be taken into account for inheritance tax purposes. Similarly, if you make a gift to someone and you die within seven years, the value of the gift will be considered.
People should remember that they would be losing control of the property if they were to transfer it outright to their children. It is possible that later down the line, there could be family conflict and they could potentially end up without a home if the children decide they want to sell the property. The family home could also be taken into account in any divorce settlement or it could form part of the child's estate if the child was to predecease them, and be left to a third party in a Will.
The above points only touch on the issues regarding care fees planning. If you require any advice, please contact the Wills, Probate, Tax & Trusts team for an appointment.