Will Care Home Fees Wipe Out Your Children’s Inheritance?

The current position

Somewhere between 40,000 and 70,000 homes are sold each year to cover the homeowner’s care fees.  With care costs running up bills of anywhere from £30,000 to £50,000 per year, nest eggs that were built up to provide a children’s inheritance can be quickly wiped out.

How it works

If you cannot afford to pay for long term care privately then the local authority must fund your care. The problem arises when we explore what ‘afford’ means. The local authority will view it as follows:

• If you have assets above £23,250 no contribution will be made by the local authority as you are considered able to pay it yourself.
• Below £14,250 a full contribution will be made by the local authority
• If you have capital between the these two figures there is a partial contribution by the local authority
• Virtually all your income will also be taken into account

Crucially, in calculating what your assets are, your home is included unless certain other people, such as a spouse, are still living in it.

So the big problem comes when a widow or widower needs long term care as they are forced to sell their home to pay for it. There is of course the same problem if a husband and wife both require care.

Does this seem unfair to you?

Many of our clients tell us that this all seems very unfair to them, because it seems to penalise prudence and saving. Those who have not been careful with their money often seem get their care for free. It is often the case that two residents might be in rooms next to each other with one paying £30,000 pa and the other paying nothing. So many people are looking for ways of preventing their homes being lost if they require long term care.

Can’t I just give the house to my children and continue living in it?

Giving the home away to the children is sometimes seen as the solution, but it is not. This is because the Local Authority can look back and if they can show that this was done to deliberately avoid care fees they will reverse it. There is no 7 year rule. At a time when ALL Local Authorities are cash strapped, they will become increasingly vigilant.

There are other more compelling reasons not to give the house to your children.

• They can sell the house without your permission
• If they get divorced or go bankrupt or even die, your house is part of their assets and who knows what might happen
• When they come to sell the house after your death they may have to pay capital gains tax as it is not their primary residence

Here is an example of the problem, and how we can solve it:

Fred and Hilda are a couple in their sixties with grown up children. Hilda dies after a short illness and leaves everything to Fred in her Will. Because their house is owned jointly, Fred also now owns the whole house. Some years later Fred needs to go into a nursing home and because all of the assets are in his name, his family is forced to sell his house worth £300,000 to pay for his care. Fred lives for a further seven years, during which time the net care home fees have amounted to a breathtaking £250,000. On Fred’s death the amount left for the children has been massively reduced. This problem is increasingly common with our ageing population.

Solution number 1

Fred and Hilda could have become ‘tenants in common’ so that they own half their house each instead of owning it jointly. Then, if Hilda had made a Will which left her half of the home in trust for her children, rather than to Fred absolutely, the children’s inheritance might have been much greater. This is because Fred could have lived in the house up until the time when he needed care. Then his assets would have been means tested, and he could not be said to own Hilda’s half of the house, because it is in trust for the children. So as far as the local authority is concerned Fred’s half of the house counts as his assets (and the assessed value may be very low) – but Hilda’s half of the house is protected for the children.

It could then also be argued in some cases that Fred’s half of the house has little or no value because nobody would buy half a house, which would potentially protect Fred’s half (or the majority of it) too*.

Incidentally, writing your Will in this way also protects your half of the house if your spouse remarries or goes bankrupt after your death – this ensures that your children rather than your spouse’s new step-children inherit your assets.

Solution number 2

While Fred and Hilda are both alive they decide to give their house to their children, but they do it in such a way that the house is held in trust for the children. This means the children have no right to the home until both parents have died. It also avoids any issues with Capital Gains Tax and ensures that Fred and Wilma could sell the house and move to a different one if they chose. Even if one of the children got divorced or died, the assets are protected because they don’t belong to the children.

Importantly, in the example above, when Fred goes into Long term Care, he cannot be said to own the house. Also, because the house was put into trust some considerable time ago, the Local Authority cannot say that they did this purely to avoid care home fees. The house should therefore be protected for the children, whose inheritance is £250,000 more than it would otherwise have been. As a bonus, the children won’t need to go to probate when Fred dies as his house is not part of his estate – this alone can save thousands.

Why not call us today for a free, no obligation consultation to find out how we could help you protect your hard earned assets against care home fees and remarriage.

Call 0800 0934299 today – every cloud really does have a Silver Lining!

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