Long Term Care

The Problem

The provision of long term residential care is means tested and in the worst case, can leave an individual with as little as £13,500 to pass on to their family. Most people are anxious that their wealth passes to the next generation rather than to the Local Authority.

The house is not included in the means test whilst a spouse (or a dependant over 60) is living in it so the problem occurs when one spouse has died and the whole of the joint assets have passed to the survivor. If that survivor needs long-term care, they will have to fund it themselves from a fixed amount of capital. With care fees currently averaging around £25,000 per year, a figure that increases with inflation, it is not difficult to see how the family’s inheritance is at risk.

“Lets give the house to the Kids�

Often the first solution people think of is to give their house to the children. There are many problems

• If the children become divorced or bankrupt then your house forms part of their divorce or bankruptcy settlement

• You give up your independence. You will have to ask the children’s permission if you want to move home and it is always possible that the children may wish to get their hands on their inheritance rather earlier than you had planned!

• The local authority have the power to claw back gifts that you have made to avoid care fees

A Better Alternative

The first stage in protecting a property is to change the way it is owned.

Most couples own their home jointly as “Joint Tenants�. This means that they each, effectively, own the whole of the property. When one dies, the survivor then owns the whole house automatically.

We need to change this to “Tenants in Common� which means that each owner then owns their share (normally half) of the house and can leave that share in their Will to whomever they wish.

It is a simple procedure and we arrange the paperwork and inform the Land Registry of the change.

The Property Protection Trust Will

The next stage is to write new Wills in which each owner leaves their share of the home to a trust usually for the benefit of the children.

It is important that nothing is done to place the survivor at a disadvantage in later life. The Trust Will protects the interest of the survivor in 4 important ways:

• The survivor has a right to live in the house for as long as he/she wishes.
• The survivor can sell the home and buy another
• The survivor can sell up completely, perhaps to move to rented sheltered accommodation. They have absolute rights over their own share of the capital, which they can spend in any way they wish. They have the right to take the income generated by the share of the capital, which is held in trust. The only part of the assets that they cannot spend is the actual capital held by the trust.
  
  
  • We make provision for the Trustees to pay capital to the survivor if that becomes necessary or even to unwind the trust arrangement completely perhaps to enable the survivor to arrange equity release on their home. Circumstances can change.
    

If the Survivor Needs Long-term Care

In the event that the survivor needs long-term care then the means test will result in them having to pay the fees until, in the worst case, they have only £13,500 left but when they eventually die the family would inherit the £13,500 that that person has left PLUS the half of the value of the home which is held by the trust.

The Palphrey Case

A Local Authority (LA) conducted a means test on a Mrs Palphrey. Her late husband had left his half of their home in trust. The LA deemed that as Mrs P owned half a house she had the means to pay her own fees. Mrs P argued that she could not sell a half interest in a house and it was therefore valueless. The Court ruled her favour. This precedent means that provided the family home has not been sold then it is now possible to protect it entirely from the cost of care.

Some other things to consider

• If there are substantial assets other than the family home we can look at protecting them in trust as well

• Some investments cannot be included in any means test usually those based on Life Assurance. We can introduce you to a Financial Advisor who specialises in Advising the Elderly

• There are different ways to pay for care. A care plan may mean paying a fixed amount up front to pay for care for the rest of your life.

• It is possible to arrange insurance against the cost of care later in life.

Note of Caution

As with all such measures we can only advise on the basis of current legislation, case law and practice. Things can change.