Probate Partner of
Bridge Sanderson Munro, Solicitors.
In the previous two articles I have set out the background to long term care and the way in which the Local Authority assesses your ability to fund your own costs on entering into a residential or nursing home. If you are assessed as having over £23,250 in savings and investments (which may in some circumstances include the value of your home) then you will be required to fund the full cost of care from your own resources. If you have between £23,250 and £14,250 you will be required to make a contribution.
One option to consider is giving away your home so that its value will not be taken into account in any subsequent assessment by the Local Authority.
The first point to bear in mind if you intend to give away your home is that, if you subsequently enter permanent care, the Local Authority may want to know the reason why you gave away your home. If they are of the opinion that the main reason was to avoid paying nursing home fees then they have the power to set the gift aside or to asses you as if you still owned the property. There is no set time limit involved here – if you cannot convince the Local Authority that you had some other good reason for giving away your home then they can effectively ignore the gift regardless of when it was made. However, in practice, the longer the gap between making the gift and entering care the less likely the Local Authority are to challenge the gift.
The second point to note is that if you give away your home you are no longer the legal owner and you will have to rely on the recipients if you wish to continue living in the property after making the gift. Typically, parents gift their property to their children and are quite confident that the children will “do the decent thing” and not try to force the parent out of the property at some later date. However, I would always ask the children to enter into a legally binding agreement with the parent setting out the terms of continued occupation to avoid any problems in this regard. Even then, the property could be at risk if the children have financial or matrimonial difficulties in which case a third party could exert pressure on them to force a sale of the property which would effectively render the parent homeless.
The potential pitfalls can be reduced if, instead of an outright gift to the children, the property is placed in some kind of Trust i.e. the house is transferred to two Trustees who will allow the parent to continue living there undisturbed for as long as he wishes and then the house can be sold and the proceeds divided equally between the children (or possibly grandchildren etc.). As the Trustees do not own the property themselves, and the children have no right to the property until it is sold, the parent’s occupation of the property should be safe even if the Trustees and/or the children experience financial or matrimonial difficulties. The choice of Trustees is obviously of paramount importance, and many of my clients appoint my self and another partner to act as impartial Trustees.
The Trust option has also proved useful for clients who have some savings and are prepared to place these in trust together with their home. There is also the benefit that the home will then pass automatically to the children on the death of the parents without the need to obtain a grant of probate, which can save a considerable amount of time and money.
In future articles I will consider the tax implications of giving away your home and also alternative ways of preserving assets for future generations without having to give your assets away. Please note that the contents of this column are for general information only and should not be relied on in individual cases. If you require legal advice on a particular matter then please do not hesitate to contact me at my firm.
We offer highly experienced legal representation, so if you are looking for a professional team to assist you, give us a call today on 01302 321 621 (Doncaster), 01405 814 136 (Thorne) or 01709 873 321 (Wath upon Dearne). Alternatively, send an email to firstname.lastname@example.org and we will respond promptly.
Probate Partner of
Bridge Sanderson Munro, Solicitors.
This week I am continuing my series of articles about planning for long term care. To recap briefly, if you have assets worth over £23,500 when you enter a residential or nursing home then you will be required to pay the full cost of your care from your own resources. Many clients ask me about ways of preserving their assets for their families if they should require long term care in the future. Most clients have some knowledge of this subject but there are a couple of areas where confusion commonly arises:-
Many clients are concerned that the Local Authority will “take their home” to cover the cost of care. In fact, it is extremely unlikely that the Local Authority would try to force a sale of your property. The Local Authority will usually simply issue monthly bills to whoever is looking after your finances. Your income from pensions etc., will usually be utilised first and then any shortfall will be met from your savings and investments. However, if your house is your main asset and you cannot afford to pay the bills then the Local Authority may seek to take a charge over your property to ensure that their outstanding account is paid when the property is sold.
Some people think that only the value of their house will be taken into account. However, the Local Authority assessment will include all your savings and investments. If you hold investments jointly with someone else then one half of the value will be taken into account. Your income from pensions etc., will also be used towards the cost of care.
A lot of clients think that there is a set time period after which the Local Authority cannot challenge any disposal of their assets. Some clients believe that they are “safe” after six months and others suggest a period of seven years. However, the Local Authority can actually look back as far as they wish from the date of admission to a home and the questionnaire you are required to complete on entering a home will usually ask whether you have ever given away any assets. The test is whether you deprived yourself of assets with the intention of avoiding having to meet the cost of your care. If so, and this was done within six months of entering a home, then the Local Authority can apply to have the gift set aside. Outside this period the Local Authority can treat you as still owning the asset that you have given away and assess you accordingly. It is therefore vital that your main reason for giving away property is not simply to avoid paying nursing home fees in the future but that there is some other valid reason for making the gift.
Having said that there is no fixed time period, it is certainly advisable to divest yourself of assets sooner rather than later as the Local Authority is more likely to scrutinise a gift made ten days before entering a nursing home than a gift made ten years prior to entering care.
It should be appreciated that to divest yourself of assets you must give them away completely. In the case of savings and investments this would mean either cashing them in and giving the cash away or perhaps transferring the investments into someone else’s name if this is possible. The position is more complicated where a person intends to give away their house but continue living there even though they are no longer the legal owner. The occupier will then be dependent on the new legal owner to allow him to stay in residence. The position can be safeguarded to some extent by way of a legal agreement setting out the occupier’s rights of occupation, but difficulties can still arise if the legal owners should experience financial or matrimonial difficulties as the house may become subject to a claim by a third party.
In the next article, I will consider the advantages and disadvantages of divesting yourself of assets and the ways in which the possible pitfalls can be mitigated by the use of trusts. In a forthcoming article I will also consider alternative ways of preserving your assets through financial planning without having to give them away.
Please note that the contents of this post are for general information only and should not be relied on in individual cases. If you require legal advice on a particular matter then please do not hesitate to contact me at my firm.