Think carefully before attempting care home fees planning
Q: Our next door neighbours, who are in their 70s, have recently signed over their house to their daughter, as they believe they will not have to pay future care home fees if they were to required to go into a home; someone came to their house and helped them with all the paperwork. We are thinking of doing this ourselves. Our house is worth about £300,000 and we have savings of about £90,000. What do you think of this idea?
A: There is so much misinformation around on this subject that it is difficult to know where to start....
Often, as in your case, a married couple’s home is their main asset, and the one which they would most like to pass onto their children. It can therefore seem very tempting to transfer property out of your names either to children or into a trust so that, in theory, its value is not included for the assessment of care home costs.
Unfortunately this does not necessarily mean that the property will not be taken into account in a ‘means test’. The Local Authority will look for evidence of what they call ‘deliberate deprivation’ of assets and are increasingly going through financial and Land Registry records to find examples of property transactions which can then be reversed for care home fees assessment purposes.
Local Authorities have legal powers and often demand to see notes from meetings with solicitors and financial advisors, as well as other evidence they request.
Some examples of common transactions which can be challenged include:
• The gift of a property to children or other relatives
• The sale of a property at less than market value to children or other relatives
• Lump sum cash gifts
• Putting assets into trusts which cannot be revoked
Transactions which take place shortly before someone requires care are particularly exposed, but there is actually no time limit which applies.
For a transaction to be deliberate deprivation, the intention to avoid care home charges must be a significant part of the reason for the transaction. For cash gifts there are often good family reasons (which have nothing to do with care home fees planning) as to why these make sense and canbe justified.
The great difficulty with the transfer of properties (either direct to children or into trust) is that it is very difficult to think of any other reasons as to why anybody would wish to do this.
Many families try to argue that the reasoning behind the transaction was to avoid Inheritance Tax (IHT), but with a joint allowance of £650,000 (the normal IHT threshold for a married couple), this argument tends not to be plausible where assets are less than this.
In addition there are adverse potential Capital Gains Tax consequences, potential exposure to children’s debts, and of course the risk that children may decide to turf parents out of the house which they no longer own!
In summary – think very carefully before proceeding and certainly get a second opinion.