Do you still need a Trust Will with Johnson’s Social Care changes?

Grandparents rights

Today Boris Johnson announced that from October 2023, no-one will have to pay more than £86,000 for care over their lifetime as part of the government’s social care plan.

Under the plan, anyone who has assets of less than £20,000 will have their care costs fully covered by the state. Those with assets between £20,000 and £100,000 will receive some means-tested state support.

To fund the plans, National Insurance contributions will rise by 1.25% and tax on share dividends will also go up by 1.25%.  The changes will come into effect from April 2022. From 2023 the NI increase will appear on people’s payslips as a separate Health & Social Care levy. (BBC)

Full details of the plan are yet to be released and this makes it a little difficult to accurately compare the proposals to the current rules.

Thresholds

Under current rules, those with assets of £23,250 or more must pay for their care in full.

Those with less than £23,250 receive some state assistance towards care, and those with assets of less than £14,250 have their care costs fully covered by the state.

Johnson plans to change these thresholds so that the upper limit (where the state starts to contribute partially) is £100,000 rather than £23,250, and the lower limit (where the state takes over funding) is £20,000 rather than £14,250. The Dilnot Commission also recommended in July 2011 that the means-tested threshold, above which people are liable for their full care costs, should be increased from £23,250 to £100,000. Subsequently, Theresa May proposed introducing this same threshold on the run up to the 2017 election but it was later dropped from the manifesto.

We don’t yet know if the value of the state contribution for those in the £20,000 – £100,000 bracket will compare to the those currently in the £14,250 – £23,250 bracket.

Total contribution

The cap of £86,000 total lifetime spend is of course completely new, although not a new proposal.

In 2011 the Dilnot Commission on Funding of Care and Support reported back to Government, recommending a cap of £35,000. A more generous cap of £72,000 then proposed by David Cameron’s Government who promised that this would be introduced by 2020. Of course, it was not. In December following the 2017 election, Ministers announced that the £72,000 cap had been scrapped.

Johnson’s new £86,000 cap has been proposed for October 2023 but given how the Government has previously gone back on its proposals, it remains to be seen whether it will materialise.

Inequality between regions

As Jon Trickett, veteran Labour MP for Hemsworth, points out, the proposed cap is going to cause injustice between regions.

For example, the average property cost in London is £510,299, whilst the average property in the North East is £149,521 (ONS, June 2021). This means couples in London could leave a potential £338,299 to their children after care costs, while couples in the North East can only hope to leave the lower limit of £40,000 between them.

The MP branded it a ‘poll tax’.

Inequalities in charges

Those having to self pay are typically charged a great deal more than those who are state funded – around 41% more in fact – effectively subsidising state-funded service users. With the average cost of care at £34,944 a year (rising to £48,720 a year when nursing care is included) this very quickly depletes the service user’s assets (Paying for Care, 2020). At present there has been no suggestion as to whether this inequality will be addressed.

Further, the amount of state funding is capped, so the person needing care (or their family) may have to ‘top up’ the contribution if they want certain services or a particular residential home. These top-ups can eat into the service user’s last remaining assets, leaving little or nothing to pass on.

What will count?

Under current rules, for couple home owners, if one person needs care and the other is still living in the family home, it is not taken into account when performing a means test (i.e. when evaluating whether the person needing care has assets of £14,250 or more).

We don’t know if this rule will still apply.

Trust Wills

Most married / civil partnership couples currently benefit from including a life interest trust in their Wills.

Imagine a couple with a property worth £284,000 as their only asset and no mortgage, for ease of illustration (the average house price for England – June 2021). Assume the husband is the first to die. Note that a ‘means test’ means an assessment of what assets the couple has that could be used to pay for care.

Without a trust Will

Current rules 

If the husband needs care during their lifetime and the wife is still living in the family home, the home will be disregarded when performing a means test.

If the husband and wife both end up in a residential facility, the home can be used to pay for care, down to the lower limit of £14,250 each (assuming there is no other elderly person living in the family home).

If the husband does not need care and leaves everything to the wife, who then needs care after his death, the full value of the home can be taken into account, down to the last £14,250.

New proposals

If the husband needs care during their lifetime and the wife is still living in the family home, we do not yet know if the home will still be disregarded as it is now, when performing a means test.

If the husband and wife both end up moving into a nursing home, we can assume that the the home would be used to pay for care (as it is now), but the new £86,000 care cap would apply. They could therefore pass on at least £112,000 inheritance in total (£284,000 less 2 x £86,000). The new care cap would therefore be an advantage in this scenario.

If the husband does not need care and leaves everything to the wife, who then needs care after his death, the full value of the home can be taken into account. Her care cap would apply, so she can pass on £198,000 (£284,000 less £86,000, assuming she does not spend it on anything else).

With a trust Will

Current rules

Currently the way to improve the amount of inheritance available for the children or grandchildren is to ensure the family home is held as  ‘tenants in common’ and leave each other a ‘life interest’ in each other’s respective share of the family home.

The ‘life interest’ means that the survivor gets to use the first-to-die’s share of the family home during their lifetime, but doesn’t own it outright. It cannot therefore be taken into account when assessing how much the survivor has in assets. Under current rules half the value of the family home would therefore be protected if the survivor needs care. So for our example where the husband does not need care and leaves everything to the wife, who then needs care after his death, the children or grandchildren will inherit at least £142,000 (the first-to-die’s share of the home), even if the survivor has to spend everything else. This is a vast improvement on £14,250!

New proposals

If and when the new rules come into effect, the wife in our example would have their own share – £142,000 – from which to pay for care – but Johnson is promising that they won’t have to pay more than the cap of £86,000. Of course, the survivor can still spend their share on other things – so with a Trust Will, the children still only have a guaranteed £142,000 inheritance (the first-to-die’s share) but if the survivor doesn’t go on any wild spending sprees, the children could receive as much as £198,000, even if the survivor does need care. You’ll see I’ve assumed if they need care, it will cost the full £86,000, since (per above) care costs £34,944 a year or £48,720 a year for nursing care.

So that’s £142,000 – first-to-die’s share of the home, plus (£142,000 less £86,000 survivor’s maximum care costs = £56,000) = £198,000.

The outcome is the same – so why would I need a Trust Will?

At first glance, under the new proposals, a Trust Will doesn’t help a couple with a £284,000 house – in fact, the outcome is just about the same. But wait! There is actually a mighty big difference.

Sure, under the new proposals, if the husband doesn’t need care and the wife inherits everything, she can pass on £198,000 – but what if she remarries? Goes bankrupt? Loses it to fraud? Goes on a lavish spending spree? Makes an unwise financial decision such as taking an expensive loan or equity release? There is absolutely nothing protecting this sum, and the children/grandchildren could end up with nothing.

Whilst the new proposals make care fees less of a concern, the Trust set up by the first-to-die’s Will protects their share of the family home  from a wide range of threats. The children or grandchildren are guaranteed to receive half the value of the house – the first-to-die’s half – no matter what the survivor does with their own share.

A further point to make is that the Tories have a habit of U-turning on policies. It would be unwise to rely on the proposals coming into effect – or to assume that you won’t die before they do (since Trust Wills offer substantial protection from the threat of care fees under current rules). Based on what we currently know, it therefore seems that for the majority of people that regardless of these new proposals, including a life interest trust in their Wills is likely to be beneficial.

The above is my own opinion on the social care changes and not intended as personal legal advice. Please do speak to a solicitor about your own personal circumstances.

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