Long Term Care Planning
Long Term Care (“LTC”) Planning is without doubt the most complicated area of later life planning. Unlike Inheritance Tax Planning, which operates according to very clear and predefined rules of what is allowed and what is not allowed - irrespective of where in the UK the deceased person lived, the application of the rules relating to LTC Planning is in the hands of Local Authorities, and experience has shown that they can behave differently although they are theoretically applying the same rules.
In terms of planning for LTC there are a number of major difficulties, not least of which is “how long will care be required for?”, and nobody can comfortably predict that. A person going into care could live for only six months, for example, or could continue in care for twenty-years plus. Given that according to the Which? 'Care home fees across the UK' article from January 2020, the average cost in the UK for a person in residential care is £33,488 per annum (2018/19), which is a lot of money.
If a person has no capital or pension income to use for care costs, and is reliant on the value of their home, given that the average house price in the England is £256,000, at £33,488 per annum the value of that home will be wiped out in just over seven and half years. This obviously means that there could be little left that person’s estate to leave to their family.
So, what are the rules exactly?
Social care is a politically devolved matter across the UK, with slightly different rules and regulations applying from country to country. However, the general approach when establishing eligibility for local authority-funded social care, involves an assessment of capital followed by a wider assessment that includes income, to assess an overall ability to pay.
The actual financial assessment (sometimes referred to as the ‘means test’) varies dependent upon whether a person will be receiving care services in their own home, which includes short breaks away, or in a residential care home or a nursing home.
Regardless of location, in most cases it will involve looking at an individual’s assets such as savings and investments and may, depending on who continues to live in it, include the value of their home. If their assets are over an upper threshold, which was £23,250 (2019/20) they will have to pay for all their social care, subject to some country-specific variations – for example what is known as personal care in Scotland is currently free, although subject to specific criteria.
If between the lower (£14,250) and upper capital limits, a person will be deemed able to contribute, known as ‘tariff income’, from their capital, which will be added to their other qualifying income to determine their ability to pay. Any capital below the lower capital limit can be disregarded – but this is only £14,250 which is not much compared to the average house price of £256,000.
Deprivation of Asset Rules
At this point, it’s worth stating that giving away assets or income to avoid having to pay for social care, is very likely to be caught by what are known as the ‘deprivation of asset’ rules. These rules are designed to prevent individuals taking such action and where they have, treat the asset or income as if it had not been given away when it comes to the financial assessment.
Age UK’s Fact Sheet on this issue (published September 2020) gives an extremely good appraisal of these rules and how easy it is to fall foul of them:
“Deprivation of assets means you have intentionally decreased your overall assets, in order to reduce the amount you contribute towards the cost of care services provided by the local authority.”
“Transferring a capital asset does not necessarily mean it is not taken into account in your financial assessment. It can still be ‘notionally’ included in the calculation. ‘Notionally’ means that, even though you may not have that capital asset anymore, you are treated as if you do still possess it.”
In fact there is even a list also provided:
Deprivation covers a broad range of ways you might transfer a capital asset out of your possession. Annex E of the guidance provides the following examples that may be deemed to be deprivation of capital:
a lump-sum payment to someone else, for example as a gift;
substantial expenditure has been incurred suddenly and is out of character with previous spending;
the title deeds of a property have been transferred to someone else;
assets put into a trust that cannot be revoked;
assets converted into another form that are disregarded in the financial assessment, for example personal possessions;
assets reduced by living extravagantly, for example gambling;
assets used to purchase an investment bond with life insurance.
Is there a solution?
As stated above, this is a complicated area of planning, however, one may also read the Age UK Fact Sheet mentioned above:
“The local authority must show that you knew you may need care and support in the future when you carried out this action. It is therefore an evidence-based test of both foreseeability and intention.”
So, as per Inheritance Tax mitigation, time is always the key. Trying to move assets around a few weeks or months before someone goes into care just doesn’t work. Like all long term planning, the time to act is now and not when it’s already too late.