Every year, hard-working people who have strived all their lives to pay for their family home are seeing their hard work count for nothing, as their homes are sold to meet the cost of care in later life.
Research shows that half of women and a third of men will require some form of long-term care. It is this, in some cases the exorbitant cost of residential care, which means thousands of people are unable to pass their family home down to their children.
What happens to homeowners entering a care home?
If you own your home the local authority will not count it as capital until you have been receiving residential care or living in a nursing home for 12 weeks. After this point, your home will still not be classed as capital if any of the following still reside there:
- Your husband, wife, partner or civil partner;
- A close relative over the age of 60 or incapacitated;
- A close relative under the age of 16 who you’re legally responsible for;
- An ex-husband, ex-wife or ex-civil partner if they are a lone parent.
How is equity in property affected by temporary stays in care homes?
Sometimes it is necessary to go into a care home temporarily, if your temporary stay becomes permanent, the equity in your home should not be treated as capital until 12 weeks from the decision that your stay is permanent, this is often overlooked, and the house treated as capital 12 weeks from the date of the initial temporarily residence.
Can you safely gift your house to a family member as you grow older?
As a method of protecting your assets you may think about giving your money or your property to family members. There is nothing that can stop you doing this but you should consider that your relatives may be required to pay tax on interest or income they receive from the asset. There are risks in gifting your home directly to relatives, they may die, divorce or get into debt, in which case your home could be involved in legal proceedings.
There may also be implications, whether you gift your house to a family member or a family trust, if you are liable to pay inheritance tax or capital gains tax. Gifting a property does not offer protection against liability for inheritance tax. It is neutral for inheritance tax and also capital gains tax as long as it remains your main and only residence.
There are also implications if you have no other substantive reasons for gifting your property other than to deliberately deprive yourself of assets that would be available to pay care home fees particularly if care is imminent. When discussing matters with clients solicitors are often able to uncover other substantive reasons for gifting property. It is important once these reasons are identified they are recorded and not, as so often happens, overshadowed by the fear of paying care home fees.
If it can be proved that the only substantive reason you had for transferring a property to a family member was to avoid paying care home fees, you will be treated in the same way as you would if you still owned the asset and the costs of care would have to be paid. If the transfer of the property to another person or trust is less than 6 months before you move to a care home, then the Local Authority can automatically recover the property without proving the reason for the gift.
Can a trust be used to ring-fence your home against care home fees?
However providing that you are more likely than anyone else to need care, in which case it would be hard for the Local Authority to prove that you deliberately deprived yourself of assets. There is a safe way to give away your home. This is by transferring the ownership of your home and other significant assets into a family trust for the benefit of yourself and your loved ones. A family trust can be created with the aid of experienced tax planning and trust solicitor. A family trust will potentially provide full protection for your assets from the future cost of care home fees.
How do you set up a trust to reduce your care home fees?
The first step is to consult an experienced trust solicitor who has expertise in estate planning for older clients. The solicitor will make sure that a family trust is suitable for you and ensure that the trust documentation is properly drafted, protects you and that you have appointed the right people to act as your trustees.
For expert assistance with tax planning and trusts and help with care home fees, call Howells Solicitors experienced team on 0808 178 2773 today.
