- It is not unusual for a client or prospective client to approach us for advice about protecting their assets (usually a house) against possible future long-term residential care costs: they may have seen publicity about such schemes or heard of them from friends.
- The aim of this Note is to try and put such schemes in context. It has to be said at the start that there is no ‘magic fix’ guaranteed to secure the aim of protecting assets from care home fees. Nevertheless, arrangements can be made which may have the effect of securing such protection.
- This Note tends to focus on the ‘doom and gloom’ aspects – in other words on the uncertainties there may be in relation to care home fees planning. But it is not all doom and gloom. There is certainly scope for arrangements which work although they need to be approached with care.
The basic idea of schemes aimed at protecting assets from Care Home Fees
- When someone moves into long-term residential care the local authority will undertake a financial assessment which includes an assessment of both the resident’s income and capital to work out what contribution (if any) is required from the resident for residential fees.
- Unsurprisingly, the more capital the resident has the greater the contribution required towards residential fees. A house, in particular, may be included as part of that assessment of capital.
- Generally schemes involve someone giving away their house to a trust whilst – one way or another – ensuring they can continue living in it for as long as they wish. Because the house is ‘given away’ to the trustees of the trust (which often include family members) the resident no longer owns it. So the house – and its capital value – is no longer theirs. Accordingly, at first sight, it should not form any part of the resident’s capital for the purposes of the local authority’s financial assessment.
- It sounds ‘too good to be true’. And so it may prove.
Some of the ‘doom and gloom’ aspects of such schemes
- The Department of Health produce a guide ‘Charging for Residential Accommodation Guide’ (generally known as ‘CRAG’) which is used by local authorities in making the financial assessments for residential care fees purposes. The guidance is not binding in Scotland but in practice it is relied on here by local authorities.
- The guidance runs to some 121 pages. No summary of all that is attempted here. For present purposes the key paragraphs are those concerning what is called ‘deprivation of capital’ . In broad terms these paragraphs provide that if someone has given away capital with a view to protecting it from residential care fees assessment then the local authority may treat the resident as still owning such capital. In other words even although the resident no longer owns it the local authority may assess the resident’s required contribution to residential fees as if he or she did still own it. The local authorities refer to this as a resident’s ‘notional capital’.
- Admittedly, sometimes the local authority may run into difficulties as to the practicalities of recovering the contributions assessed on the basis of a resident’s ‘notional capital’. But this is not the place to go into that.
Some more ‘doom and gloom’ about ‘deprivation of capital’
- For the purposes of this Note there are four key points to make:
- The local authority does not need to prove that a ‘deprivation’ was made in order to avoid the capital being included in a care fees assessment.
- They simply need to be able to come to the view that a significant reason – not the only reason – for a deprivation was to exclude the asset from the care fees financial assessment.
- They may base that view on inferences from the facts. Suppose an elderly person gives away his or her house to a trust. Under that trust his or her children are to get the capital on their parent’s death. In a particular case the local authority might reasonably be able to infer that one significant reason for doing this was to avoid care fees: so they could treat it as ‘notional capital’.
- Even if other reasons can be advanced for having set up such a trust the local authority may conclude that those other reasons are not enough to prevent an attempt to exclude the asset from care fees assessment having been a significant reason.
- In principle it does not matter how long ago a ‘deprivation of capital’ occurred. A case in 2007 involved a local authority seeking to treat the gift of a house which occurred 11 years before the resident went into residential care as a ‘deprivation of capital’.
Enough of the ‘doom and gloom’
The above outline aims to be realistic rather than pessimistic. But it may have been rather heavy on the ‘doom and gloom’ side of things. As far as the timing of any disposal of capital is concerned the CRAG guidance itself (at para. 6.070 of the April 2011 edition) offers something positive:
‘The timing of the disposal [of capital] should be taken into account when considering the purpose of the disposal. It would be unreasonable to decide that a resident had disposed of an asset in order to reduce his charge for accommodation when the disposal took place at a time when he was fit and healthy and could not have foreseen the need for a move to residential accommodation.’
So, for those clients intent on aiming for some form of asset protection against residential care fees the advice must be: to act early; to act with care; and to acknowledge there is no ‘magic-fix’. But there may well, nevertheless, be some form of fix.
Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action.
If you would like us to advise you on any of the matters covered in this material, please contact Neil Mackenzie: firstname.lastname@example.org