When someone goes into care
| Published: 28th July 2008 18:14 |
When someone goes into care
When someone goes into care, life can be very distressing for their loved ones - especially when a local authority calls asking to complete a financial assessment so that they can determine who pays for the cost of their care. David Millar from Legacy Legal Services in Heald Green, Cheadle looks at how a local authority treats the value of someone's home when they go into care
Anyone who has capital (including the value of their property) in excess of £22,250 and who needs care will not be able to claim financial assistance from the local authority and will have to fund the cost of their care themselves. Here I look at how the local authority treats the assessment of the house. In my experience, now that recent changes to inheritance tax have alleviated tax concerns for many, this is something that many of my clients are becoming increasingly keen to shelter from being sold to pay for their care.
The resident owns their houses jointly with their spouse.
The good news is that the value of property is completely disregarded as long as the spouse of the resident continues to live in it.
The resident has transferred the ownership of their house to their children.
If the local authority believes the resident has deprived themselves of capital to obtain a benefit they would not otherwise be entitled to, they can treat that person as still owning the capital. There is no time limit attached to this assessment.
Of course there may be many reasons for wanting to transfer ownership of your property to your children, or to a trust such as to save probate fees on death, pass on the burden of property maintenance before your death and business people might want to shelter their assets from creditors. It is vital to take good quality professional advice before contemplating this move because if an advisor has on their file that the reason for the transfer was to avoid paying care fees, this is likely to lead to the local authority treating this as deprivation of assets and having the transaction overturned.
The resident owns the house jointly with someone else.
The local authority will assess the ownership of the house, for example 50-50, and would then have to allocate a value to the share belonging to the resident. It is unlikely that the half share would have a value on the open market without vacant possession being available but the important factor is whether or not the joint owner is also resident of the property. There have been two cases relating to this; in Chief Adjudication Officer v Palfrey the half share of the property was judged to have a nil value because the joint owner lived at the property, whereas in Chief Adjudication Officer v Wilkinson the joint owner had inherited their share of the property by their mother's Will and did not live there and in this case the value of the half share of the property was deemed to be 50% of the open market value.
The resident owns their house but a child lives with them.
If the child is over 60 or under 16 and dependent on the resident or if the child is incapacitated, the local authority cannot assess the value of the property - it is exempt from assessment. In all other cases the local authority will assess the value of the property as if the child as not living there. In practice they won't ‘kick the child out on the streets,' but they can either take a charge against the property to recover their costs when it is eventually sold, or alternatively they can refuse to provide financial support on the basis that the resident has assessable capital in excess of £21,500.
The resident owns their house, which is now vacant.
The local authority will assess the full market value of the property - and on the basis that it will mean that the resident is very likely to have assessed capital of greater than £21, 500, they will require the resident to fund the cost of their care. If the resident is going into permanent care then the value of the property must be disregarded by the local authority for the first 12 weeks, or until sold, if sooner.
So what are the options?
As we have seen earlier, if a resident is in care and their spouse continues to live at home, the value of the home is disregarded by the local authority. However, if the spouse living at home subsequently dies and their share of the home passes to the resident, then the local authority will complete a new assessment and take into account the full value of the property.
By drafting Wills for both spouses which leave their respective shares of their property (and possibly money as well) into a life interest trust created by the Will of the first person to die, the surviving spouse does not become the owner of the trust assets. If the surviving spouse is in care at that time, or subsequently goes into care, then they will not be assessed as owning the assets held in the trust. The terms of the trust will normally allow the surviving spouse to live in the share of property which is part of the trust (and they can live in their own share) which means that they can live in the whole property. The terms of the trust usually provide for the share of property to be sold which will allow the surviving spouse flexibility to move.
This will ensure that half of the value of the property is protected from being used to pay for care fees of the resident, the surviving spouse. The trustees of the trust could decide that they don't want to sell their share of the property and argue that under the cases of ‘Palfrey' the value of the half of the house belonging to the resident is Nil - but there can be no guarantee this will be successful. This method has the advantage that it does not create problems with deprivation rules (the only person who has given anything away is dead) and ensures that each owner retains ownership of their assets while they are alive. However, this option has the disadvantage that it potentially only protects half of the assets and if both of a couple need care, then none of their assets will be protected. Will planning is also not an option for single and widowed people.
Planning during lifetime
It is essential that this type of planning is done early - and well before there is any foreseeable need for care.
It is usual to transfer property and cash assets into a trust, usually referred to as an Asset Protection Trust which is broadly similar to the trust in the Will outlined above. Because the assets are owned by the trust they cannot be assessed as being owned by the resident who needs care - provided that when the assets were transferred to the trust, the intention of avoiding charges for care fees are not the only reason for doing so, or a significant one, and that the transfer took place at a time when the resident was fit and healthy and could not have foreseen the need for a move to residential accommodation.
This method has the advantage that is available to single and widowed people and it protects all of the value of assets in the trust - potentially including the whole value of the home. The disadvantages are that you can never be sure that the transaction doesn't fail the deprivation rule, it is not an option for people who are already in poor health and some people might be uncomfortable with the idea of transferring ownership of their house to a trust.
Conclusion
Selling your house to pay for care fees is not inevitable if you do need care. There are different solutions for different people in different circumstances. The earlier you plan, the more options you have and the greater the likelihood of success. Any plan needs careful thought and in conjunction with top quality advice.
For Dave Millar's Contact details please view here
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