Avoiding care home fees: is it possible?

Lady stressed about paying care home fees at laptop

A common question I get is, ‘how can I avoid paying care home fees’? With fees at around £800 a week for a place in a care home or £1,078 a week for nursing care*, it’s not surprising so many people are so worried about their assets.

I’ve already covered the current rules on who has to pay for care here, including the Government’s proposed ‘care cap’ and continued delay on its introduction. If you are not already aware of the rules, please do read that post as it sets out the current rules, future proposals and problems I envisage with those.

The bottom line is that even if the Government’s care cap does come into force, it is limited to personal care only. Living expenses, which make up a large proportion of residential care costs, won’t count. Most people will therefore still find their savings are quickly depleted.

In this article, I look at whether there is any legitimate way to avoid care home fees in England and Wales. I’ll explore the law and Ombudsman’s guidance on Deprivation of Capital, before looking at a Will structure that can help to protect half your home.

Deprivation of assets – what is it?

If you need care, your local authority will perform a means test to see if you have the funds to pay for it. Again, please do read my earlier post if you’re not familiar with this process. If it transpires that you have given away assets prior to that point, the local authority may start to investigate whether this was done with the motive of avoiding care fees.

The law describes this as a ‘transfer of assets to avoid charges’. It says:

(1) This section applies in a case where an adult’s needs have been or are being met by a local authority under sections 18 to 20 and where—
(a) the adult has transferred an asset to another person (a “transferee”),
(b) the transfer was undertaken with the intention of avoiding charges for having the adult’s needs met, and
(c) either the consideration for the transfer was less than the value of the asset or there was no consideration for the transfer (Section 70, Care Act 2014)

An oft-cited Scottish case (not binding but persuasive), Yule v South Lanarkshire Council [1999] 1 CCLR 546, shows us that there’s no limit to how far back they can investigate when looking at gifts or transfers you have made.

Powers of the Local Authority

If the Local Authority decides you have indeed deprived yourself of assets to avoid care fees, they have quite wide powers to remedy the issue.

Under Regulations they can treat you as ‘possessing capital’ if they find that you have deprived yourself of it, ‘for the purpose of decreasing the amount [you] may be liable to pay towards the cost of meeting [your] needs for care and support’ (Care and Support (Charging and Assessment of Resources) Regulations 2014, Regulation 22). The value of the capital that you have deprived yourself of is called ‘notional capital’. This might happen if, for example, you transferred ownership of your home into a lifetime trust (sometimes called an ‘Asset Protection Trust’) with no other obviously good reason for doing so.

Another power can be found under the Care Act 2014. In cases where people have transferred ownership of the asset to another person (such as their son or daughter), the person in receipt of the asset – the transferee – will become liable to pay the local authority an amount equal to the difference between the amount the authority would have charged the person needing care were it not for the transfer of the asset, and the amount it did in fact charge the person.

The local Authority has all the usual powers to recover this debt, including initiating proceedings in the County Court or ultimately insolvency proceedings.

In some cases, those on the receiving end of the local authority’s powers do not agree with the decision made, and have complained to the Local Government and Social Care Ombudsman.

Is every gift a ‘deprivation of assets’?

No, crucially, not every gift you’ve made should be regarded as depriving yourself of assets. In fact, this was explicitly stated in an interesting Court of Protection case,  West Sussex County Council (18 007 203), which demonstrated that the Ombudsman will sometimes step in and question how local authorities reach their decisions. It is this type of case that led the Ombudsman to issue detailed guidance, citing instances where councils have:

Clearly those in receipt of care can still make gifts in some circumstances. This can be seen from North Yorkshire County Council (16 006 552) in which Mrs Z made gifts to her family whilst fully funding her own care costs. When her funds were then depleted and the local authority refused to pay for her care, the Ombudsman found them at fault because it had failed to take account of all the relevant factors, including the pattern of gifts that had been made over the years.

Note that the Ombudsman will not question the local authority’s decision per se. Their role is to ensure the decision making process was correctly followed. Provided that the local authority considers all the information available when reaching its decision and acts in line with the guidance, the Ombudsman will not try to change the outcome (Dudley Metropolitan Borough Council (20 004 128)). So for example, in Darlington Borough Council (19 001 435), the Ombudsman held that the Council had not properly considered what Mrs Y’s motive was in making two gifts of £2,000 to her children to recognise the care and support they had provided since her husband’s death in 2008. It did not substitute the local authority’s decision but it did required them to reconsider the decision and follow the proper process.

The ombudsman's role

What guidance does the Ombudsman provide?

The Ombudsman expects local authorities to make enquiries including obtaining a version of events from the person needing care or their representative before making decisions on deprivation of capital. It notes that they may also reasonably ask that person to provide supporting evidence for their account. They should consider if the person ‘must have known that they needed care and support’, and whether they must have had a ‘reasonable expectation’ they may need to pay towards that care and support at the time of the deprivation.

Local authorities also need to consider the timing of the disposal of an asset. This can help inform a decision about the person’s motivation for disposing of the asset.

In addition to these points, the Ombudsman notes that ‘the fact that an individual may have existing care and support needs, or know in general terms that they may be expected to pay for care, may not solely be sufficient grounds to demonstrate there was an intent to benefit from deprivation. The [local authority] will still need to consider the individual’s motivation in disposing of an asset and explain the reasons for its decision.’

What is the 7 year rule?

The 7 year rule is a myth that assets disposed of more than seven years ago will not be taken into account for the means test in social care assessments. The confusion comes from rules relating to disposals for Inheritance Tax. But as we have seen from the Yule v South Lanarkshire Council [2000] case, the 7 year rule does not apply when it comes to assessing whether assets were disposed of to avoid care.

So, can I avoid paying care home fees?

You can’t gift your assets with the motive of avoiding care home fees. You can make gifts with another clear motive, such as helping struggling relatives with living expenses, school fees etc. But be aware if a need for care is on the horizon, the local authority may question your sudden generosity, with the consequences outlined above. You should therefore clearly record your motives, e.g. in a letter, when making the gift. You should also keep meticulous records for local authority and Inheritance Tax purposes, including a note of whether the gift came from capital or income.

There is something in addition that you can do to protect part of the value of your home, if you’re either married or in a civil partnership. It is important to act on this while you still have full mental capacity.

Many couples structure their Wills so everything goes to each other, then the children. This is frankly a terrible idea. It means that the survivor inherits everything and the whole estate could be considered for care fees in a means test assessment. It also means if they remarry then die first, the estate can pass sideways outside of the family (even if their Will says otherwise, their spouse can make a claim).

A better structure – one that law firm April King has been advocating for a long time – is to ensure the property is held as ‘Tenants in Common in equal shares’ (i.e. so each of you owns a distinct half share of the property and can leave it to who you like), then leave the survivor a life interest in their share. This means that the survivor has use of the first-to-die’s half of the property but doesn’t own it. Because they don’t own it, it can’t be taken into account when performing a means test. When the survivor dies, the first-to-die’s half passes according to their Will – this might be e.g. to their children.

This structure also means that if the survivor remarries or gets into financial difficulty, the first-to-die’s share is still safe. The survivor continues to have use of it for life, after which it passes as the first-to-die intended.

So how does this work for care fees?

While both are alive, if one party needs residential care and the other doesn’t, the house isn’t considered in the means test anyway.

If both parties need residential care, the house is considered in the means test – nothing further can be done.

When one dies, their 50% share is held in a life interest trust – the survivor has use of it for life but never owns it. Even if the survivor needs care, the 50% they don’t own cannot be considered for a means test.

Is this deprivation of assets? No, absolutely 100% not. You continue to own your share of the family home for your lifetime – you never give it away. As noted above, if you do have care needs, your share can still be at risk. But once you die, you clearly no longer have a care need. It is the survivor that may have the care need in the future, and they don’t deprive themselves of anything – their share of the home is still available for the means test.

It’s not perfect – it doesn’t help if you both need residential care during your lifetimes – but it does maximise the chances that a substantial part of your estate will be safe from care fees. Finally, if you do already have serious care needs, do look into NHS Continuing Healthcare funding. Availability is limited and you may have to fight for it, but it’s worth pursuing.

I’m not taking on new clients at the moment due to commitments, but I do recommend speaking to April King about this type of Will. Led by a full STEP-member, they’ve been advocating this structure for years and have a lot of experience writing such Wills.

*Source: Age UK

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