How to Avoid Selling your Home to pay for Care Fees

Posted by

There have been a number of articles in the press and on social media lately about elderly people having to sell their homes to pay for care fees. 

Essentially what happens if you need to go into a care is that the local authority will send a care specialist to your house to carry out a care needs assessment to find out which care is best for you. Then they will carry out a financial means test to calculate the contribution you will have to pay. The means test will take into account your income and savings and, depending upon circumstances, your property too.

If you need to go into residential care permanently, you will have to sell your property unless it is occupied by a member or ex-member of your family (that includes former partners, unless they are estranged from you). Your property will be assessed on its current market value less any loans on it and minus 10% for selling expenses.

Pitfalls to Avoid

Many people decide to gift their property to their children in order to avoid having to sell the property to pay for care. However, this isn’t necessarily a good option as you need to be careful not to be in breach of the ‘Deliberate Deprivation of Assets’ rules. That’s when a local authority deems that you have deliberately reduced your capital to avoid care fees. Some of the instances when this could occur include if you have gifted away assets or if you have spent large amounts of money prior to your care needs assessment, for example.

You can give your children large financial gifts as long as it’s clear your motivation is not to avoid care fees. That means giving away smaller amounts of money when you are young and healthy and there’s no prospect of you needing care in the near future.

However, there is no cut-off ‘safe’ point for you to do this. Plus there can be financial risks and implications involved in reducing your capital.

Property Trusts

When spouses or civil partners own a property in joint names, they can protect half of their home from care fees by setting up a Property Trust. The value of half the home is ring-fenced by the trust when one partner dies. The surviving partner keeps their half of the house, whilst the other half is held in trust. The half that is held in trust will not be counted by the local authority towards the surviving partner’s care home fees. So for example, a house that’s worth £300,000 on the day of the first partner’s death will only have £150,000 considered for home care fees.

The other advantage of a Property Trust is that the surviving partner can still live in the house. The trust allows the surviving partner to sell the house if they want to and invest the money in a new property, or to have the proceeds of the sale outright if needed.

When the surviving partner dies, the property kept in trust is passed on to the beneficiaries set out in a will.

Life Interest Trusts

A Life Interest Trust works in a similar way to a Protective Property Trust in that one half of the property is ring-fenced off after a spouse or partner’s death so it will not be liable for the surviving partner’s care home fees.

The key difference is that a Life Interest Trust allows you to put part or the whole of your estate into trust and not just your property. Just as with a Protective Property Trust, you choose someone, usually a partner or spouse, to benefit from the trust whilst they are alive. This beneficiary will have the right to live in the property and also the right to receive an income from the trust assets.

The underlying capital in the trust is protected for all of beneficiaries of a will and the capital will pass to them on the death of the second partner.

If you do need to move permanently into a care home, there is no way of avoiding having to pay the fees. But with careful planning, you can take steps to protect your assets so they are not all ‘sucked up’ into paying for these fees.

Before deciding which type of trust you want to take out, it’s important to seek professional advice so that you can maximise the opportunities available and have the best option in place to meet your personal circumstances.

To find out more click here or call us today on 01792 420844 to book an appointment.