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.