Care Home Fees. Bill and Carol’s Case Study – how care fees can diminish the value of an estate
Bill and Carol have been married for 50 years, have an adult son David and they are both 68 years old. Their jointly owned house is worth around £150,000 and they have savings of £50,000 between them. They have simple Mirror Wills in place that leave everything to each other and when the survivor dies, everything will pass to David.
Going forward 6 years, Bill dies and his estate passes to Carol under the terms of his Will. Carol now owns the house in her sole name and, together with the savings, she has total assets of £200,000.
Going forward another 3 years, Carol’s health is deteriorating to the extent that she will need to move into a residential care home.
When the local authority carry out their assessment they can see that she has assets worth over £23,250 so Carol will have to pay for her own care home fees.
The yearly cost of Carol’s care home is £30,000 and she stays there for 5 years until she dies. The total amount of care home fees Carol has paid is £150,000.
Since Carol has had to pay for her care, this has reduced her estate down to £50,000 which is the figure that David receives as his inheritance – minus funeral and legal probate costs.
With careful planning, Bill and Carol could have put measures in place to protect as much of their wealth as possible.
Please don’t let this kind of thing happen to you. This scenario, and the pain that comes with it, can be avoided by putting in careful estate planning measures such as the ones recommended by our expert Estate Planning Advisers, so contact LPA Guardian to see how we can help you.
THE LEGAL BIT – SOCIAL CARE FEES
We’re all aware from the news and the media that the UK population is living longer and that the public purse is under ever an increasing strain.
In the UK we now have vastly improved life expectancy which is a great success story of the last century.
Official figures show that the general population is expected to rise by 3% in the period between 2015 and 2020, and the ageing population is expected to look like this:
- Over 65s to increase by 12% ie 1.1 million;
- Over 85s to increase by 18% ie 300,000;
- Centenarians (aged over 100) by 40% ie 7,000.
These improvements in living standards unfortunately have a downside – if health improvements don’t correspond with those increases, the reality is that there will be a relatively smaller working-age population supporting the spending on the elderly and on social care.
Current statistics indicate that 1 in 3 babies born in the UK today will live to see their 100th birthday, so this is an undeniable (and unstoppable) trend.
The challenges of an ageing population will be significantly great when it comes to funding social care and it is an issue that concerns many of our clients.
Social care – current situation
There has been a lot of debate over social care fees and, politically, it’s become somewhat of a hot potato. It’s fair to say that there are likely to be changes afoot. Many things have been said about the future of how social care will be funded, including the promise of a fees cap, but (any proposals aside) currently, the rules are:
- If you have more than £23,250 in assets you will have to pay for your care home fees (it’s £23,750 if you live in Wales).
- If you are below this figure, you will make a contribution, based on a means-assessment.
- The figure includes savings, income and potentially your property.
- If your assets are at, or fall to below, £14,250, only your income is considered for means-assessment and your property is not.
The Government has pledged to put measures in place so that anyone with ongoing social care needs will have a reduced risk of losing their home and all their savings, but details are yet to come.
Social care costs
What we do know for certain is that the level of current costs of going into a home are rising. The most recent figures from a Laing & Buisson 2016/2107 study found that you can expect to pay on average around £31,200 a year in residential costs, rising to over £43,000 if nursing care is needed.
The cost of residential care also varies regionally, with the South East (not surprisingly) coming in as most expensive at over £1,000 a week, and the North East being the “cheapest” at around £660 a week. It’s fair to say that, regardless of where you live, there are no “bargains” to be had when it comes to health care.
In this climate, it’s understandable that you may be concerned about how you will fund your care. You may also feel that, having worked hard all of your life, it seems somewhat unfair that your assets could go towards funding your care in your old age rather than benefitting your loved ones.
You may be tempted to consider something drastic like giving away your home or selling it to relatives to avoid having to pay care fees, but you need to very careful about what you do. This could be seen as “deliberate deprivation” which is an attempt to put your assets beyond the reach of the local authority, and any sale like this could be reversed.
The local authority has the authority to look behind any such transaction and ask:
- What assets did you have and dispose of;
- What were your given reasons for disposing of them;
- When did this happen – was there anything significant about the timing; and
- What could the true motivation have been behind the disposal.
Using estate planning to ring-fence assets
At LPA Guardian we would never advise you to do anything with the express reason to avoid the use of your assets for paying care home fees. We would advise you to look at your situation as a whole as part of a wider estate planning process – preferably as soon as you are able – because there may be types of planning that you can put in place that will help to ring-fence your assets in various situations.
The use of the right type of Trust, for instance, as part of a wider estate planning exercise can protect your assets and can work to frustrate the use of your assets as a contribution towards your care provided this is not your primary objective.
It is important to stress that public policy and legislation is clear that you cannot get rid of your property in order to frustrate the collection of your contribution to your care fees as a primary objective and, consequently, we would obviously never advise you to undertake actions with that end in mind.
However, it is possible to create certain Trusts for the benefit of your family that may produce this result as an incidental side benefit. The right kind of Trust can be used to safeguard your assets in several ways including:
- Protecting your children’s inheritance from sideways disinheritance on a surviving spouse’s remarriage.
- Protecting your children’s inheritance from third party claims such as divorce settlements and/or bankruptcy and creditors.
- Allowing you to mitigate Inheritance Tax for future generations.
As with a lot of estate planning generally, it’s better to put these measures in place sooner rather than later and our expert advisers can explore the best way forward to achieve your aims.