Mitigating the Cost of Care Funding
Richard Bates, partner at Coole Bevis LLP in Horsham, comments on how products claiming to protect assets from care fees are sometimes too good to be true.
For a number of years, most recently, during June’s general election, much has been made of the UK’s ‘social care crisis’; specifically, the dissonance between an increasingly ageing population and the lack of funding to meet the cost of care. Solicitors are receiving ever more enquiries from people wishing to leave a healthy inheritance for their loved ones.
Presently, most people are responsible for the cost of their care if their capital exceeds £23,250. However, when calculating capital, the value of the home may be disregarded if the a person who remains there who is over 60, under 16 or is disabled. Controversially, the Conservatives have suggested that they will effectively do away with this disregard , so that the property can be taken into account, albeit that the debt need only be paid on death. Despite talk of ‘protecting £100,000 of assets’ the fact is that, due to house values, it is this current system that would seem to better protect a family’s wealth.
Even without this latest twist, more and more clients have been seeking advice on ‘wealth preservation trusts’. These are marketed under a range of names usually at a cost in the region of £2,000-£8,000. Typically, these trusts are set up to hold the clients’ property so as to mitigate inheritance tax (‘IHT’) and protect assets from ‘care home fees’. The wide application of these arrangements is troubling because, in the vast majority of cases that I have seen, they were wholly inappropriate for the clients concerned.
It is rarely a good idea to give your property away, even to a trust. The ownersYou are left without full control of their your property and difficulty in arranging future finance. Most of my clients also feel very strongly that they should be able to keep ‘the roof over their heads’.
Many of the trust arrangements that I have seen purported to save IHT when the clients concerned had no IHT problem at all. This was because those clients were each entitled to the ‘nil rate band’ of £325,000 and, now, the ‘residence nil rate band’ of £100,000. Given that both of these exemptions can be transferred between spouses, they had a tax-free amount of £850,000, which, in nearly all cases, comfortably exceeded their wealth.
The other big selling point of these schemes was the (almost) guarantee that the home would be ‘protected from the cost of care’. Regrettably, this is grossly misleading.
The law regarding ‘Deliberate Deprivation’ is most recently contained in the Care Act 2014. A Deliberate Deprivation is where a person has intentionally diminished their assets so as to reduce the amount they are charged by their local authority for the cost of care. To succeed in their claim, the local authority much show, on the balance of probabilities (i.e. 51%), that the person, at that time, knew they might need support in the future. There is no ‘cut-off date’, so a local authority can back as long as it likes when looking at transfers.
A local authority’s case is much easier to prove as a person ages, where there is a relevant diagnosis or experience of care or if the scheme itself is advertised to ‘save care fees’! In addition, one can’t rely on an inheritance tax planning argument if there isn’t an IHT problem in any event.
As a result, unwitting clients may part with thousands of pounds for a wholly inappropriate scheme. All too often, the scheme provider is an unregulated limited company, with little or no insurance so there is little recourse if things go wrong.
Whilst a Deliberate Deprivation claim is a civil matter, there is also the possibility of criminal charges for a person who deliberately seeks to defraud a local authority. Given the current mantra of austerity, it may not be too long before a policy change seeks to advocate criminal sanctions in such cases.
There are a number of ways to mitigate the cost of care, one of which is simply having the right type of will. However, what is most important is to seek independent, trusted advice from trained and insured professionals. Of course the above schemes can be appropriate, but do your research and listen to your gut instinct – if it seems too good to be true, it possibly is…
Richard is a solicitor specialising in later life planning. He helps clients and their families navigate a planned path into older age and a comfortable transition from independent to assisted living. Coole Bevis LLP offers a ‘one-stop shop’ for clients wanting consistency, close personal relationships with their advisors and reliable long term assistance. You can reach Richard at firstname.lastname@example.org or on (01403) 224614.
This article is also at Horsham Living Magazine