The common pitfalls and what to avoid

In the current financial climate, we are all feeling the squeeze. With average care fees now totalling £5,000 per month, more and more people are looking at what they can do to relieve the burden of nursing and residential care.

But what can we do to mitigate the impact on both your estate, and your loved ones?

Below, we look at some of the common errors and why they should be avoided.

Gifting property

Giving away your property to someone, in most cases, will not work and will inevitably lead to wasted time and costs. Unlike inheritance tax there is no “time limit” by which you must survive. There is a very common misconception that if you gift your property to someone and survive this gift by seven years, it will not be included in your estate for care fee purposes. This is not correct.

Gifting an asset to avoid care fees is termed a “deprivation of assets” – i.e. you have intentionally given away your property for the purposes of avoiding care fees, or specifically, having to sell your house to pay for care fees.

Other implications include inheritance tax, more of which can be found on the govenments website https://www.gov.uk/inheritance-tax . A more obvious example would be that if you gifted your property, you lose the right to do with it as you wish, such as selling it. There is also an increased risk of you losing your property, if the new owner decides to sell it or encounters financial difficulty.

(1) Life Interest Trust Will

If you and your spouse own a property jointly, then preparing a Life Interest Trust Will with a qualified solicitor is a recognised method of protecting your estate from adverse care costs.

The Trust is designed to protect 50% of the property from care fees. Under the terms of the Will, your spouse will have the right to benefit from your share of the property upon death – i.e. living in the property uninterrupted, receiving income etc.

The ownership of the property would be changed from joint ownership to tenants in common (in most cases, this means that both parties would hold a 50% beneficial share of the property) at the Land Registry. This is done at the time of preparing your Wills.

Under the terms of the Will, you would not be entitled to receive your spouse’s share, and you would only ever retain a 50% beneficial share. Instead, upon your spouse’s death, their share is held on trust for the benefit of another and they are only entitled to receive the same at the end of the Life Interest (generally, this is on the second death unless other conditions stated in the Will are triggered).

This means that if an assessment for care fees takes place, you would only be assessed on the 50% that you own, not the 50% owned by your late spouse.

For example: Mr and Mrs Bear own a property jointly valued at £200,000. They prepared life interest trust Wills and now hold the property as tenants in common, meaning that they now each hold a beneficial interest of £100,000. They both stipulated that each of their shares are to go to their children at the end of the Life Interest.

Upon Mrs Bear’s death, Mr Bear continued to occupy the property uninterrupted until 2025. When the local authority conducted a financial assessment for care fees, it was determined that he owned 50% of the property and as such, only £100,000 was considered for care fee purposes. They could not take Mrs Bear’s share into consideration.

(2) Lasting Power of Attorneys (LPAs)

LPAs are a very useful tool when planning for the future. In the context of care fees, they will allow your attorney(s) the authority to make informed decisions and explore funding options; considering what is suitable to both your needs, and finances.

Sadly, residential and nursing care can sometimes be inevitable and there are some circumstances when that decision is taken away from the individual and their loved ones i.e. they have been placed there by the local authority or a hospital.

An LPA for Health and Welfare will allow your attorneys to make decisions as to where you are to live in such cases. This is important when considering costs- for instance, the local authority may place you in a residential home seeking costs of £5,000 per month, when there may be a similar residence locally that offers the same services for £3,500 a month. Your attorney(s) will utilise the authority of the LPA and relocate you if it is suitable to your needs.

An LPA for financial decisions will allow your attorney(s) to manage your finances and ensure that care fees are paid in time; thereby protecting your general wellbeing and security, whilst avoiding any unnecessary costs.

If you would like advice on any of the above, please contact us on 0800 083 0815 where a member of the Private Client Team can provide you with a free initial consultation to discuss any of your concerns.