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!

12 Comments

  • Linda Parkinson

    29th January 2013

    My grandfather has been told that if he puts the property in his childrens name and he dies within the next 9 yrs and he needs care in this time he would have to pay the care costs and take the house off him any way is this true??

  • Steve99

    30th January 2013

    Hello Linda
    No that is not the case. If your grandfather gives his property to his children and he needs to go into care later on, there is no time limit on how far back the local authority can go. Realistically however, they have to be able to show that when he gave the property away that he had some foreseeability of care, which would be extremely difficult to do after 9 years.
    However, there are other pitfalls involved in simply gifting your house to your children. These range from the problem of one child dying, divorcing or going bankrupt while still owning a share of your property to the children or ‘throwing out’ the person owns the house. Very importantly, when the children come to sell the house there would be capital gains tax to pay on any rise in the price of the property.

    These drawbacks can be got around by transferring the property into a trust rather than into the names of the children. If you would like to know more about this please contact me on 01473 276186 or st steve@silverliningep.co.uk.

    Stephen Wilkes, Adv. Cert. in Will Prep England and Wales
    STEP Aff. Member
    Head of Estate Planning
    http://www.silverliningep.co.uk
    01473 276186

  • Steve99

    31st January 2013

    It would depend on why he had put the property in his children’s name in the first place, and care should be taken on this point to avoid deliberately depriving the local authority. There may be a range of reasons why he would want to pass the house to his children in advance.
    As far as the 9 years goes, in my opinion there is nothing in the legislation which suggests a 9 year timescale.

    Hope this helps.

    Steve

  • freda baxter

    9th June 2013

    If Hilda is about to be put in a home and jointly ownes her house with her husband when she dies what happends to her half of the house? do the government get it or her husband as per her will?

  • Steve99

    10th June 2013

    When she dies her ‘half’ of the house will pass automatically to her husband if he has survived her. But the same also applies if her husband dies first, i.e his share would pass to her. At that point it would very likely be used to pay for her care, so it might be prudent to ensure that her husband does not leave his share to her. He will neeed to sever the tenancy of the property and serve notice on her, then change his Will so that his share of the property is left elsewhere.

    Hope this helps, if you need to know any more please contact me on 01473 276186.

    Steve Wilkes
    Managing Director

  • Wendy Evans

    5th January 2015

    My husband and I made a will last year , John, leaving his half of the property to both our children, and myself having done the same. the property is jointly owned.
    I felt that my husband was changing in that his memory was faultering after he had an anethsetic for a knee replacement, and jumping forward to the future I was worried that should any of us need care, we needed to protect our children`s inheritance.
    It has taken fifteen months to get a dignosis of FTD/Alzhymers/Dysphasia, and as much as it hurts I have had to take out a lasting power of atourney for my husband, and at the time he was able to do the same for me. Should any of us fail to carry out this position, the children are next in line to take over the responsibility.
    Whay I need to know now, is with the will being as such, and the LPA in place, should any of us need to have nursing care, can the property be taken away from us to pqay for carehome fees. I am told that it may be safer to change the ownership to tennants in common, if so, with my husband deteriorating,are we now able to change jont ownership to tennants in common, and will this safeguard the whole of the property for our children.

  • Steve99

    5th January 2015

    Without knowing the full content of the Wills you made it is difficult to be specific and you should not take my views as personal advice.
    When you made the Wills, in order for your husband to have been able to leave his share of the property to the children (whether in trust or absolutely), the ownership of the property should probably have been changed to tenants in common. Without this in place, the property passes to the survivor and is therefore liable to care fees if the survivor needs long term care, as they own it. If the person drafting the Will did not advise this it may have been negligent on their part.
    Depending on the level of your husband’s capacity there are two possible solutions:
    1) If he has the requisite capacity you can both sign a mutual severance of tenance to make the house tenants in common.
    2) If he does not, you can serve him with a notice telling him that you are severing the tenancy unilaterally. This would need to be registered at the land registry, and you should seek advice on how to do this, from ourselves or others.

    Hope this helps

    Steve Wilkes
    Head of Estate Planning

  • Lucia

    3rd May 2015

    Our parental home has just been sold in England to pay for care home fees in Scotland. We know that my parents want each of their 9 grandchildren to have £3k each. Mother passed away in 2002, Dad turns 86 & after what looked like the end for him is now thriving as a Alzheimer’s patient in secure care. I suspect my father has had this illness since mother died and it does explain his behaviour. My siblings think he has some capacity but we granted us shared PoA and told me he no longer feels able to deal with his finances. I know that be wanted to protect his asset for us and he asked my sister to look after it but she declined despite being an accountant who should have known better. Can I sue he for depriving me of my inheritance by failing to discuss the matter with us and failing to put the parental home into Trust.

    I’ve proposed we release £3k for each grandchild now rather than wait until father passes by which time this relatively small sum could be worth even less. I only have I child while my 3 siblings have 8 between them and I do not contest this ‘perceived unfairness’ as it means each grandchild is receiving the same amount.

    As regards how we manage the estate I’ve proposed each of the siblings look after a quarter share and pay one quarter if the care home fees each month by DD.

    My sisters are against this idea and one of them as a millionairess has taken control of my father’s finances. I know that she has split the estate of £180k into 3 of his accounts and arranged to pay care home fees from one of them.

    My father has been assessed as a risk to himself and others and therefore may be eligible for free care.

    Please advise

    Lucia

  • Steve99

    5th May 2015

    Firstly it seems to me that it will be a long and difficult road if you decide to sue your sister for so many reasons. You should seek specialist legal advice before doing so, but on the facts presented it is difficult to see how she could be found personally liable. Transferring your father’s house while acting under an LPA would almost certainly be seen as deliberate deprivation, and it is hard to see how this would be in your father’s best interests.
    Under a Power of Attorney you do not have the authority to start giving assets away before someone dies, other for customary occasions like birthdays. You would need to apply to the Court of Protection to do this.

    Finally, if the care were being provided in England you could apply for full funding, but i have no knowledge of how this works in Scotland.

    Steve Wilkes
    Head of Estate Planning

  • Angela Fitzgerald

    12th August 2016

    My parents original will left half the house to me if one parent died and then the other half to me when my other parent died. My parents then had their will reviewed a couple of years ago and was told that that was no longer legal so the will was changed to the house being left to either one or the other of them which means they are now vulnerable to care home costs. Was this advice correct?

  • T G THOMAS

    25th March 2017

    If my wife and I enter into a ‘Tenants In Common’ agreement, what happens if I die. I understand that the house will go to my wife in total. If my wife then has to go into care will the Council take the house to pay for her fees?. I also understand that if she dies then the house will automatically be passed on as per our mirrored will.

    Thank you

    T G THOMAS
    Mr

  • admin

    25th March 2017

    While it is always difficult to comment on individual cases, i can say that if a couple’s property is owned as tenants in common, their share will pass under the terms of their Will when they die. In order to protect it against being used to pay for the survivor’s care fees, there needs to be a trust in the Will of the first to die. The tenants in common arrangement on it’s own is not enough.
    If you would like more specific advice please give us a call on 01473 358195.
    Stephen Wilkes
    Head of Estate Planning

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