Long Term Care Fees & Mitigation
It is a fact that people are living longer nowadays. It is predicted that by 2031 more than 36% of the population will be over 60 years old. And that around 70% will need long term care.
The likelihood is that the cost of care will be an issue for most of us. Especially in a society where we are cash poor but asset rich. Those of us that own a property, run the risk of potentially losing our home to fund care fees. However, there are steps you can take NOW to prevent your estate from being eaten up by care fees.
3 ways to mitigate long term care fees
A simple solution for those that own their property as Joint tenants.
One of the simplest and often the easiest ways of protecting your property is by severing the joint tenancy.
- Own it as “Tenants in Common” instead. This essentially means that you will both own a share of the property. This is usually 50/50. But the shares can be different if say, one party contributed more to the purchase price.
- You will only own half the house. Therefore the local authority can only take half the property value into consideration when assessing your care fees.
- Further, with a sitting a tenant the value of the property would be a lot less. For example, if you went in to a care home but your husband/wife was still living in the house. You can’t sell half a house with someone living in it.
- If you proceed with this option ensure that you update your Will otherwise it defeats the purpose. And, if you don’t have a Will we strongly suggest you make one.
If you own your property in your sole name
The above obviously does not work if a property is in your sole name. But fear not as we may have a solution for you too.
If you are married but own the property in your sole name then you can make the most of the spousal exemption. You can transfer half of the property to your husband/wife. As your husband/wife is an exempt beneficiary there are no tax consequences. You should however note that they are likely to be conveyancing fees payable.
We must stress that this only works for married couples. Transferring half the house to other individuals like your children could have Inheritance Tax implications. People often think that if you survive 7 years after gifting the half the property then it is outside of your estate for Inheritance Tax purposes. WRONG! If you transfer half of a property and continue on living there then you are still receiving a benefit from it. This is known as a Gift with Reservation of Benefit. As a consequence, HM Revenue and Customs will take the whole value of the property into consideration for Inheritance Tax purposes.
A complicated option
A more complicated option is an Asset Protection Trust which is a lifetime trust.
- You can set this Trust up during your lifetime.
- The purpose of this Trust is to secure property and cash for your beneficiaries.
- You can put assets into the Trust up to the value of the Nil Rate of Band which is currently £325,000. A married couple can set up one Trust each.
- You can transfer your share of a property into the Asset Protection Trust. This basically means that you will no longer own that share of the property as the ownership passes to the Trustees of the Trust.
- You can “enjoy” the property i.e. you have the right to live there and can receive income from the capital.
- However, you no longer own any of the assets transferred to the Trust nor do you have control over them. The Trustees are then the beneficial owners of the assets and hold them on Trust for the beneficiaries.
- If you don’t own an asset then the local authority cannot taken it into consideration for care fees.
- The sole purpose of an Asset Protection cannot be to mitigate care fees, as this would be deprivation of assets. A local authority can take into consideration any assets transferred into the Trust if they think that was the sole purpose when assessing care fees.
- You should note that this Trust is completely ineffective for mitigating Inheritance Tax.
PROFESSIONAL ADVICE SHOULD BE SOUGHT BEFORE ENTERING INTO ANY SUCH ARRANGEMENT!
Lasting Power of Attorney and Care Fees
It is also worth noting that if you lose mental capacity and don’t have a Lasting Power of Attorney for Health and Welfare in place, then no one can challenge a care decision on your behalf. You could end up paying thousands of pounds in care fees, when you may not have to.
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