Care home fees are likely to be a worry for many pensioners facing the time when they are no longer able to look after themselves and need to turn to residential care. And the reason for those worries is not at all hard to find – it is the rising cost of care home fees.
There is no clear consensus on the cost of care in a residential home.
Research published by insurers Royal London revealed that average weekly costs in England and Wales vary between £500 and £710 – depending on the particular region in which you live.
*In Scotland, the Scottish government will meet the part of care home bills relating to social care, and so the proportion of the value of a typical home taken up will be lower than in the rest of the UK. The figure shown here is net of the social care contribution from the Scottish government.
Based on an average 130-week stay in a care home, fees at these rates are likely to absorb between 18% and 56% of the value of the average home.
A story published in the Telegraph newspaper in August 2016, however, painted an even bleaker picture. According to this press report, average care home fees have already reached an average of £30,000 a year (a total of £75,000 based on Royal London’s estimate of an average 130-week length of stay).
Health Insurance Daily estimates that total care home fees are likely to cost the average individual between £50,000 and £93,000, depending on which part of the UK they live.
Either way, care home fees at this level account for a considerable proportion of the value of any residence. While the amount of state help you may be entitled to depends on where in the country you live, in many cases the maximum value of any assets (including your home) you can own is just £23,250 before you must pay for care home costs yourself. This means that some people may have to sell their home in order to fund these costs.
Is it possible to avoid those costs?
When deciding whether you are to be “self-funded” or may receive financial help with care home costs, your local authority conducts a means test, including a valuation of your assets and property.
Since self-funding is necessary if your savings and property are worth more than £23,250, many people might be tempted into giving away or transferring property to their children for a nominal sum. These actions are taken into account when the local authority makes its financial assessment of your means and they may decide that your gift or transfer amounts to a “deprivation of assets”.
As advice from Kent County Council makes clear, if there has been a deprivation of assets, their value is still included in the assessment of your means and, in some cases, the beneficiaries of your actions may be required to contribute to the cost of your residential care.
Placing your property in trust
Questions involving deprivation of assets and so-called “deliberate deprivation” are resolved with reference to the intention behind any gift or sale for a nominal amount. If the transfer is made with the deliberate intention of avoiding care home fees, for example, the local authority is likely to consider the move a deliberate deprivation of assets and include the value in the financial assessment of your means.
The situation – and your motivation – is likely to be less obvious, however, if you place the property in trust as part of the general management of your financial affairs as you enter your mature years.
With your property in trust, you typically continue to live in your home and pay the trustees a nominal rent, until your transfer to residential care when that time comes.
Placing the property in trust may also be a way of helping your surviving beneficiaries avoid inheritance tax liabilities.
If you decide to place your home in trust, it is important to attend to the property insurance implications – which we describe elsewhere in our webpages.
In any event, placing your home in trust – whether or not this is an aid to avoid some or all or your care home fees – is a complicated matter on which you might want to consult an independent financial adviser, or speak to someone at UKinsuranceNET.
“If you transfer your home into a trust , IHT is payable by the trustees at 20% on the value above the threshold of £325,000. If you die within 7 years your executors will have to pay a further 20% IHT on the transfer. If you continue to live in the home after the transfer then you will have made a gift with reservation and so it will always be treated as still owned by you for IHT. The 10 year anniversary IHT charge may also apply to your trustees. Detailed tax advice should always be obtained!”
Further reading: The Complete Guide to Insuring a Property which is in a Trust