How to protect your estate from care home fees?
An ageing population and an increased need for individuals to be cared for in residential and nursing homes has led to an increase in care home fees with the average resident paying £26,000 per year.
The Local Authority (LA) is responsible for covering the full cost of residential care for those with capital assets below £14,250. For those with assets valued between £14,250 and £23,250 the Local Authority will make a contribution.
However, Local Authorities will not assist with care home fees in circumstances where an individual has capital assets over £23,250.
Life Interest Trusts
One solution is for married couples to include a Life Interest Trust in their Wills, in favour of the survivor on first death. This avoids the full impact of care home fees and to safeguard their children’s inheritance as far as possible. However, careful drafting is required if the Wills are to have the desired effect. Also, where, as is usually the case, the home is jointly owned, the type of ownership will need to be checked to ensure that the Wills will operate effectively.
In the UK there are two different ways in which property can be owned jointly, either as ‘joint tenants’ or as ‘tenants in common’. If a property is held as joint tenants this will mean on the first death of a couple the property will automatically pass to the survivor by survivorship regardless of what their Wills say. This means that the survivor will become the sole owner of the property and the Will Trust will be ineffective. As a result the full value of the property will be taken into account if the survivor subsequently has to go into care.
However, in order to avoid this situation it is possible to ‘sever the joint tenancy’ to convert the joint ownership of property to what is known as a ‘tenants in common’ basis. This means that each of the joint owners can direct in their Wills as to how they wish their share in the property to be dealt with on first death. In this case it will pass into the Trust, as desired.
The survivor will be given a life interest in the half share of the property held in the Trust which will be created by the Will of the first of them to die with, typically, the share eventually passing down to their children after the survivor’s death. The terms of the Trust will allow the surviving partner to live in the property rent-free for the rest of their life. Importantly, based on current legislation, the LA cannot take into account the capital value of the half share of the property held by the Trust when assessing the survivor’s liability to pay care fees if they have to go into a home.
In essence this will protect the value of a half share of the property for the children. It will not, for example, be possible for the LA to challenge this arrangement on the basis that the survivor has ‘deliberately deprived themselves of assets’ to avoid paying care fees. This is for the simple reason that the survivor has not in fact given anything away but has simply received a ‘trust interest’ rather than an absolute interest under their spouse’s Will.
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For initial advice about Estate Planning including Lasting Powers of Attorney, Wills, Trusts and Probate; call our team on 0203 488 7503, 01992 236 110 or contact us by email at legal@walshwestlaw.com or via our website www.walshwestcca.com.