The assessment of care fees: assets you can and cannot hide

Sarah Walker, Weightmans

Social care is at crisis point in this country: there is an increasing demand on services and a shrinking budget to provide it. Extra funding from central government is part of the solution, but so too is increased payment from individuals in need of care who have the means to contribute.

Asking people to dip into their hard-earned savings or to sell their home is never an easy thing to do. However, with an aging population and squeezes on finances, it is something all local authorities need to consider. The challenge is in identifying those cases where a contribution is appropriate, particularly where deliberate steps have been taken to try to exclude property from the assessment process.

Attempts to thwart assessment

An individual is liable to contribute towards the cost of their care if their assessable income and capital exceeds the prescribed threshold.

Assessing income, cash savings and investments is usually relatively straight-forward. It is the assessment of any value locked up in property and land, particularly within the family home, that tends to be problematic, partly because of misunderstanding about how the assessment rules apply but also, increasingly, because of attempts to put in place structures which are designed to exclude this value from the assessment process.

General rules on assessment

The value of an individual’s home might be counted as capital after 12 weeks if they make a permanent move into a care home.

This is unless the home is occupied by:

  • the individual’s husband, wife, partner or civil partner;
  • a close relative who is aged 60 or over or who is incapacitated;
  • a close relative under the age of 16 who the individual is legally liable to support;
  • or the individual’s ex-husband, ex-wife, ex-partner or ex-civil partner if they are a lone parent.

Local authorities have the discretion to exclude the home from capital assessment in other situations, such as where it is occupied by the individual’s former carer in circumstances where it was necessary for the carer to give up occupation of their own home to fulfil that role.

A common misconception among individuals going through the assessment process is that the value of their home can be excluded from the assessment of capital if they rent their home out to a paying tenant. This is not the case, although it is true that the rental income they receive in these circumstances will not be classed as income for assessment purposes.

Avoidance schemes

There are a number of current schemes individuals are being advised to use in order to avoid capital being included in the assessment of their financial means. These schemes are often promoted by unregulated advisors who lack expertise in this difficult area of law and who are giving people unrealistic expectations of what can be achieved. As a result of this, we have seen an increase in the number of deliberate deprivation of capital cases which can justifiably be challenged by local authorities.

The two main schemes being used at the moment are:

  • ownership of property as tenants in common, with wills leaving the survivor a right to occupy the share of the first to die but with no interest in respect of the capital or that half of the net sale proceeds;
  • or placing the property into trust so that it is no longer owned by the person who is contemplating care.

The first scheme cannot, of itself, be considered deprivation of capital as we all have the right to leave our share of any property we own to whomever we choose.

By entering this sort of arrangement, the half share of the property owned by the first of the tenant’s in common to die will be effectively ring fenced from assessment in the event of the surviving tenant in common requiring care. However, it does not automatically follow that the half share owned by the survivor will also be excluded from the assessment process. This is something many advisers fail to appreciate, and which is resulting in people being given inaccurate advice.

While it is true that it is difficult to value a half share of a property, it is a capital asset and the local authority can insist on the property being sold in order for the survivor’s share in the sale proceeds to be used to fund their care. The survivor cannot and should not assume that their half share of the property will be protected.

The second scheme is one where the rules regarding gifts and deprivation of capital come heavily into play. The transfer of a property to a trust is a gift, and whether or not a gift is caught by the rules on deprivation of capital comes down to motivation and timing. Increasingly we are seeing many vulnerable people set up this style of trust as a result of being poorly advised in circumstances which are clearly open to challenge.

When faced with a trust scenario, local authorities should carefully consider when the trust was set up and the health of the person going into care at the relevant time. For the scheme to fail, you will have to establish that achieving a reduction in liability for the payment of care fees was a significant motivating factor. Bear in mind, however, that even where there were other motivators at play, the gift may still fall foul of the rules. For example, if the trust deed expresses that part of its purpose is to aid succession rights or avoid the need for probate to be obtained, this does not automatically mean that it is an effective device for sidestepping the rules around deprivation of capital.

If, at the time the property was placed in trust, the person gifting their home to the trust was frail or had recently been diagnosed with a debilitating condition which would almost certainly necessitate care being provided, then this is likely to be a strong indicator that – despite any other factors that may have also been at play – deprivation of capital considerations were still a factor in the decision making process.

Conclusion

With the family home increasingly forming the bulk of many people’s estates, it is perhaps not surprising that we are seeing an increase in the number of cases where steps are being taken to try to preserve value. However, the cost of social care continues to be a huge problem for local authorities and therefore it is only fair that those able to pay for their own care are made to do so.

Local authorities need to remain vigilant and ensure that they stay up to date with the details of any schemes being touted as suitable for care fee mitigation purposes. Particular caution needs to be exercised where trusts have been created, or wills altered, in the face of a poor medical prognosis or with clients of advancing years or other vulnerabilities.