LPA

A simple guide to Care Fee Planning

Whilst many hope to avoid paying care home fees, is there really a perfect solution?

I get it. We don’t want to see our hard-earned money being spent in our golden years on care costs. But, with the ‘estate planning’ world awash with promises of easy ‘fix all’ solutions, what really is the truth behind the sales pitch? Here, we take a balanced look at some of the vehicles for, and indeed the likely need for ‘care cost planning’.

I am Neil Quantick, a specialist Estate Planning solicitor based in the UK with over 25 years experience of dealing with wills, trusts, court of protection, and tax and care fee planning. In this article, we take a particular look at the ‘put your home in trust’ rally cry that comes from many (often) unqualified and unregulated ‘will drafters’. Is it all they are seemingly sold to be? By definition, they are aimed at couples who have a certain amount of wealth – ie something to lose as it were. But what do these schemes achieve? And, on the balance of probabilities, does the law of averages say that those ‘wealthy’ couples tempted into care planning are in fact playing such long odds of ever benefiting from the care planning that it is questionable to seek to persuade them that they might (reap a benefit).

What is Care Fee planning?

As with Inheritance Tax (IHT) planning, the idea is (in its simplest form) to rid ourselves (on paper at least) of as many assets as possible. In the case of care fee planning, the idea is to have capital savings/assets of less than £14,250-£23,250 (see below capital limits). Having done that, instead of paying for our own care costs (assuming they are needed), the tax payer will meet them for us.

The sales pitches from ‘estate planners’ seems to always include big tempting headlines about homes being lost, and questioning why we should disinherit our loved ones. What they don’t however seem to give is the cold balance to that – in particular what are the odds of any such planning ever being enjoyed, and even it is, at what cost.

How much does Care cost?

The cost of care varies enormously dependant on the level of care you need, and indeed where you are based in the UK. As a broad brush, you can expect to pay anything from £30k (£2.5k a month) a year to £100k (£8k a month) plus.

Do remember that when in care, costs are very predictable, and the living costs that would otherwise be being incurred (ie outside of care) are not having to be met.

What is a Means Test for care fees?

Your capital wealth is only part of the picture. You will be ‘means tested’ for care fee contribution, which will include an assessment of your income. If it is deemed that you can afford the care fees (from income), then you will be liable to meet them come what may.

Some context as to who ends up in care

So, in betting terms, what are the odds of care home fees ever even being an issue for us all? Well, despite an ageing population, the majority of us wont in fact die in care. Statistics are difficult to come by, but here are some which may help us put some context to this.

According to the Office for National Statistics, recent annual deaths in care are at around 126k. That’s against total deaths of 577k. Add into that the fact that ‘care’ doesn’t in fact mean just nursing home care, it means any ‘senior’ accommodation so that includes retirement villages, warden assisted accommodation, and so on. Remember also that of those that do die in a true ‘care’ situation, a proportion would always have been funded by the local authority anyway, and so they too fall away from the ‘odds’.

Sticking a licked finger in the air, it seems reasonable to say that (say) less than 1 in 10 of us will ever face a situation whereby and care fee planning would have been worthwhile in any event. Already, the ‘gloss’ of the win-win care fee planning schemes seems to bloom rather, as the odds of it being needed are relatively low.

What is life expectancy in a Care Home?

Of those in ‘care’, many will simply be in accommodation that falls category, without in fact being ‘nursed’ in any way. For those that opt to move into ‘sheltered accommodation’ when in good health, the average life expectancy is still only thought to be in the region of 4 years. Remember that this includes a conscious decision to ‘downsize’ and so would likely have included the sale of any property that was owned.

As to those who find themselves unexpectedly in a nursing home (eg because of sudden illness), average life expectancy is a matter of months.

What is the Capital threshold for care home fees?

The current threshold for capital is £23,250. If you’re savings exceed this, you will have to fund any care costs.

The value of your property will be taken into account when calculating this capital threshold. It is however excluded if it remains the home of:

your partner or spouse
a relative over 60
a relative under 60 who is incapacitated
a divorced or estranged partner – if they are a lone parent
a child under 16 who is maintained by you

What is the 12 week property disregard?

During the first 12 weeks of being a permanent resident in care, the value of your home will be disregarded by the local authority.

What is the deferred payment scheme?

You may be eligible to utilise the deferred payment scheme, and not then have to sell the property. Interest becomes payable, and it only applies to your main home (not any other property).

What is the deliberate deprivation of assets?

When the local authority conducts a means test, they will look at what assets have been gifted away. If it appears that any gifts were made with the intention avoiding payment of care fees, they are permitted to include the ‘gifted values’ back into your assets on the basis of your ‘deliberate deprivation of assets’. This can apply to gifts made to persons outright, or into trust. In very simple terms, you need to demonstrate good reason for the gift made explaining away the notion of the deliberate deprivation of assets.

Who is eligible to local authority care fee contributions?

So to summarise, if you can afford to pay the fees yourself from income, you must pay them. If your capital assets fall below the capital threshold (currently £23,500) you may become eligible for payment of or a contribution to your care fees. A means test will look closely at all aspects to your income and capital, and may even seek to take account of gifts you made.

Do remember too, that in not paying your own care fees, there is no ‘magic pot’ of money to meet them instead. It comes from your local authority – and therefore from the taxpayer – your friends, relatives, and so on.

The capital limit for local authority is currently £23,250.

A working example

Having established some of the framework around care costs and those of that might need care (and those that won’t), let’s apply this to a working example. Let’s look to see if the care fee planning schemes pushed so hard by some are in fact what they are cracked to be?

For the purposes of this, lets assume an elderly married couple have:

£500,000 – home owned jointly
£150,000 – savings and investments
£24,000 – annual income (£2k a month)

One of them becomes seriously ill, and needs to be cared for in a nursing home. Let’s say that the costs for that are a mid range and £4k a month. Entering care following illness means the average life expectancy is just months. Let’s allocate £1,000 a month from their £2,000 income. There is a shortfall of £3,000 a month, and £150,000 in savings/investments. For that scenario to deplete that capital to zero (before getting anywhere close to the value of the house), the person in care would have to live for over 4 years!

Further, for the capital threshold to be reached, the persons half share of the house alone would also have to be depleted to below the £23,500 limited – so another £276,500 which at a shortfall of £3k a month would take another 7.5 years – or 11.5 years in total….!

From that, it is easy to see that the lottery win of care planning is a lottery ticket we may not need to have bought. So, what do we mean by care planning – what are the nuts and bolts of what’s involved in these supposedly fabulous schemes.

Can I gift my share of the house?

As above, the basis of both care fee planning and tax planning is to try to reduce our wealth in some form or other. In other words, gifting away our ‘estate’. Given that for many the family home is the bulk of that estate, it naturally becomes a target for gifting.

And so, many of the ‘schemes’ which purport to solve a care home funding problem involve making a gift of your part of the family home either by:

outright gift – either during your lifetime or in your will
gift into trust – again, either during your lifetime or in your will

And so yes, you can gift your share of the family home, the bigger question is why would you want? Because, whether that gift is during your lifetime, or on death via your will, you are complicating things with the roof over your head! And, unless it is done properly (eg without a deemed deprivation of assets), the local authority might disregard the apparent gift in any event!

As outright owner(s) of our homes, it is ours to do with as we please. That is peace of mind that in my view is priceless.

Can I choose what nursing home I go into?

Yes, if you are self-funding you can choose where you go (subject to it being affordable). BUT, if you rely on local authority funding, the choice is theirs, not yours. And so NO, with local authority funding you lose with that ability to chose where your care is provided.

Further, lets also assume that you ‘successfully’ managed to deplete your assets, and so were able to look to have the taxpayer meet your care costs, the other thing to be mindful of is that that care will be ‘cheap’. It may not be anything like what you might have hoped for, and indeed could have enjoyed, had you not disposed of assets. An authority may allow you to ‘top up’ their contribution – but they are under no obligation to do so.

Is my home at risk by gifting part or all of it to my children?

Yes, whether a gift made during your lifetime or on death via your will, if you make others part owners of your family home, then others may have a claim on it that could mean you even end up having to leave. So, for example, if one of your children divorced, became bankrupt, or died, then this could course serious problems with other seeking to make a claim against the house, and to the detriment of the surviving spouse.

Whilst some ‘estate planners’ seem happy to ‘play’ with the ownership of the family home (whether placing into trust or gifting outright), my personal view after decades of specialist practice as an estate planning solicitor is that the default position should invariably be DON’T DO IT (without very good reason).

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I hope you have found this guide helpful. Remember, it is just a guide – and not intended to be legal advice. That’s where our specialist solicitors come in! So do reach out if you need advice specific to your circumstances.