The risk of individuals losing their homes and life savings to care costs is a real one. The average annual cost of nursing home care is estimated to be over £44,000 per annum and support to pay these fees is means-tested.
Individuals with savings of over £23,250 often have to pay for their care costs in full without support and are typically known as ‘self-funders’. An estimated £7bn of personal funds are spent on social care each year and for individuals going into a residential or nursing home, it can mean having to sell their home if a partner is no longer living in it.
Many individuals want to be able to pass on assets to their wider families but can still require use of them during their lifetime. This could potentially be achieved by making gifts to wider family members or to a discretionary trust established for the benefit of the family.
Trusts are generally used in family situations where an individual wishes to give assets away for the wider and long-term benefit of the family, but still wishes to retain control of them during their lifetime. They therefore provide some comfort that property will not be sold without their permission.
Thought should be given to the wider consequences of creating a trust, as part of a wider review of an individual’s personal affairs. For example, what are the inheritance tax implications of making such gifts, and will the individual have sufficient funds to support themselves throughout their retirement? In general, a gift of property is unlikely to have any significant advantage from an inheritance tax perspective whilst the individual continues to live in it, unless a market-value rent is paid.
Alternatives to making gifts might therefore be explored and some individuals invest in financial products, known as ‘immediate care plans’, which can provide an annuity income that is tax free if it is paid directly to a care provider.
It is important to note that even if a property is gifted or put into trust, it is still possible for local authorities to challenge the validity of this as a ‘deliberate deprivation of assets’ to meet care fees. Two key areas that will be looked at are: firstly, whether the individual knew that they might need care; and, secondly, whether avoiding care costs was a significant reason for making the gift.
The timing and, importantly, the intention of any gift is therefore crucial and, if the individual is not fit and healthy at the time of the gift, the assets could well be counted in any means-tested calculation.
Ultimately, early advice as part of a wider succession planning exercise is important for gifts to fall outside the lottery of paying for care, and individuals should be particularly wary of marketed trust schemes where the primary motive is the avoidance of social care costs as they could incur unnecessary tax costs and professional fees.