Care Fees and the Importance of Planning Ahead
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.
For example: Mr Bear has a family history of dementia, he owns a property jointly with his wife and in 2002 they decided that to avoid paying care fees later in life, they would transfer ownership of their property to their children but continue occupying it. Sadly, Mrs Bear died in 2007. It is now 2025 and Mr Bear has been placed in a residential home, which attracts fees of £5,000 per month. As part of his financial assessment, the local authority looks at what assets he currently has, as well as assets he previously owned – this includes his former property. The local authority determine that Mr Bear intentionally deprived himself of the property to avoid care fees, and as a result, the full value of the property is now included within the financial assessment.
Property Protection Trusts
There are several organisations in the UK that purport to offer products or services that avoid care fees entirely and these should be viewed cautiously. One such product is a “Property Protection Trust”. You should be aware that many of these organisations are unregulated and the consequences of placing your property in Trust in the wrong circumstances can be severe.
A Property Protection Trust works by putting your property in trust, in the care of Trustees. Not only would you lose autonomy over the property (i.e. the right to do with it as you wish) there are several tax implications that you should be aware of. For all intents and purposes, you are effectively giving away your property, and as before, the local authority can “recoup” the asset if it is determined that it was done to avoid care fees.
Again, there is no time limit with this, so it doesn’t matter if you did it ten, or even twenty years ago.
There are a number of circumstances in which someone may decide to gift their property or transfer it into trust. This article is not intended to deter you from doing these things absolutely and has been prepared within the context of care fees only.
If you intend to gift or transfer your property into trust, or have done previously, we would strongly encourage you to seek legal advice from a qualified and regulated individual.
What could Mr and Mrs Bear have done to mitigate their liability?
It is important to remember that you should not plan to avoid care fees, but rather, plan to mitigate the impact of care fees. Deliberate avoidance of care fees will inevitably have a detrimental effect not only on yourself and your affairs, but also potentially your loved ones.
Below are examples of what you can do to mitigate your care fee liability: -
(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.
