If you are faced with care costs you may be wondering about putting a house in trust to avoid care home fees.
Care home fees can be a huge financial burden for families, especially if there are no plans in place to pay for care.
But is putting a house in trust to avoid care home fees a good idea?
In this article you’ll learn about how trusts work and whether putting your house in one is a viable option for you.
Disclosure: You should not use this article to make financial or legal decisions and we highly recommend you seek professional advice from someone who is authorised to provide financial and/or legal advice.
Here’s a summary of what we’ll cover:
- Depending on how much your estate is worth, you may or may not be eligible for local authority funding for care home fees.
- Putting a house in trust to avoid care home fees is part of some peoples’ financial planning for paying care costs.
- It is doable, but not necessarily advisable, as it can be risky and leave you without the right support or housing if things go wrong.
- Plus, you could be suspected of deprivation of assets to avoid care home fees which means you will have to fully fund your care.
What are the options for paying care home fees?
Local authority funding
Your local authority is responsible for helping you pay for adult social care if you don’t have the means to do so.
Eligibility for local authority funding is determined through a financial means test which evaluates your assets.
If you have less than the lower capital limit (LCL) of £14,250 you will be eligible for full funding of care home fees.
Those who have between the LCL and the upper capital limit (UCL) of £23,250 may be eligible for partially funded care.
Paying for your own care
If you have the funds available to pay for your own care, you will be expected to do so.
People in this position will have over £23,250 in savings and property, and will not receive support from the local authority.
Paying for your own care gives you full choice over where you live and what services you use.
As well as care home fees, these capital limits also apply to paying for home care.
What is putting a house in trust?
Putting a house in trust can have an impact on what care home costs and other care fees you pay.
In this next section, we’ll explain what a trust is, how they can be used with property and in relation to paying care home fees.
What is a trust?
A trust acts as a company, as it is overseen by a board of trustees, with bank accounts and HMRC status.
Trusts are generally used to keep property or assets in a family with rules dictating when, how and by whom they can be used.
The trustees would usually be the children or relatives of the person who has created the trust.
What types of trust are there?
Here are the three common types of trusts which can be used for property.
- A Protective Property Trust (property trust will) keeps a portion of your property to pass onto loved ones.
- Life Interest Trust creates income from investments or property to be received by you or another beneficiary of the trust.
- Interest in Possessions Trust creates income that you or another named beneficiary can claim as it is generated.
What does the trust do?
The trust ensures that you don’t have to use your assets to pay for your care, so that they can be passed to beneficiaries.
Assets, such as property, are protected until your death, when they can be inherited by the beneficiaries of your will.
When you die, the trustees divide your estate between the beneficiaries of your will, as the document instructs them to do.
Putting a house it trust
Putting a house in trust means that, effectively, your property and assets are no longer your own.
However, until you die, you are legally permitted to reside in the home you have put into trust.
You can choose to end the arrangement early, and move out or sell the property as you wish.
Or you live in a care home or assisted living facility, and the property is passed on to your family or selected beneficiary.
Putting a house in trust to avoid care home fees
You cannot deliberately try to avoid care home fees by putting your house in trust.
This is known as the deprivation of assets and is not looked favourably upon by funding bodies.
Even though putting a house that you own in trust reduces the value of your estate, which could make you eligible for council funding.
Are there risks with putting a house in trust to avoid care home fees?
In a word, yes.
It is not advisable to specifically put a house in trust to avoid care home fees, just before you seek financial support.
Rushed financial moves can backfire on you and count as deprivation of assets, which is not accepted by councils.
If your local authority believes the trust was created to avoid paying for care home fees they will penalise your funding eligibility.
Can I put my assets in a trust to avoid care home fees?
To avoid being accused of deprivation of assets, putting a house in trust must be carefully considered.
Naturally, if the trust was created some years prior to seeking funding for care home fees, it would reduce the value of your estate.
It cannot be done with the sole purpose to avoid care home fees.
In fact, there are lots of other benefits to putting your property in trust.
What are the benefits of putting a house in trust?
- It can reduce your inheritance tax bill after you die
- Provide income for your family or beneficiaries
- Asset protection
- Reduces the value of your estate which can make you eligible for local authority funding
- Avoid probate delays for will beneficiaries after you die
You must consider your personal situation and get advice from a financial advisor before making a decision.
Are there downsides to gifting assets and property or putting them in trust?
Putting your assets and property into trust is a relatively safe way of financially protecting them.
The downsides include the time and cost it takes to set up and administer the trust.
You may also find that the council looks unfavourably on the trust when you come to need residential care.
And if you have gifted your assets to avoid care fees, you may have to pay more than you imagined for your care.
Fortunes of family members can change unexpectedly over time.
If you have gifted your assets to your family, their financial or living situation may affect yours as well.
For example, you gifted your home to your child and the arrangement is that you will live in it until you move into a care home or die.
This could be a period of many years, but during that time their circumstances may change and disrupt your plans.
Considerations for divorce, bankruptcy and arguments
If you have signed your home over to your child, it will count as part of their own asset portfolio.
In the event of a divorce or a bankruptcy, this means it will be assessed as their property which may be sold to satisfy certain conditions.
Plus, if anything happens to them, your property or assets would pass to the people named in their will, leaving you in a difficult position.
If others now own your property, can you be sure you will be taken care of in the event of a family rift?
What is deprivation of assets?
Deprivation of assets is when people move or sell their assets to avoid paying costs associated with care.
This is, in effect, financial fraud.
Councils can ignore your current financial state, and still charge you what you should have paid, pre- deprivation of assets.
You can appeal their decision, however, you would likely still need to pay the care home fees until the case was settled.
What counts as deprivation of assets?
Deprivation of assets is trying to get rid of them quickly with the intention to avoid care home fees.
This can include:
- Transferring legal ownership of your home to someone else, such as a child or another relative.
- Giving away your cash or investments.
- Gambling and losing money.
- Buying large assets that aren’t included in the assessment, such as cars, antiques or jewels.
- Spending in an unusual way, for instance paying for expensive holidays or big shopping sprees.
When would it be flagged up?
Councils may suspect you if you are signing your property or assets over to someone shortly before you go into a care home.
This is particularly suspicious if a diagnosis has recently been made, or care needs changed around this time.
What isn’t counted as deprivation of assets?
Signing away your property or assets in trust some years before you need to go into a care home can be acceptable.
Though there could still be tax implications for this, and some local authorities may still not like it.
It’s best to seek specialist advice on what will work for your particular situation before making any decisions.
What is disposal of assets?
Disposal of assets is very similar to deprivation of assets, and refers to hiding your cash from the council.
A person may sell their assets and stash the cash away, claiming that it has been spent.
This is not a good idea as councils are getting better and better at uncovering these fraudulent behaviours.
If they believe this is the case, they will take that money into account and you will still be responsible for paying for your own care.
How to plan for care costs
Get Personalised Advice
It may seem expensive to get advice on property trusts and your financial affairs regarding paying for future care fees.
But nursing home fees are expensive and cost on average £888 per week, so it’s worth knowing your options.
An advisor will be able to help maximise your financial affairs to increase your monthly income in your retirement.
Further financial planning for later life
Where possible it’s a good idea to plan for how you would like to spend your later years.
You may not already require care services, but putting money aside in the event that you do can reduce stress later down the line.
This could include receiving care at home, moving to a care home or care and services at the end of your life.
Make legal and financial decisions including a lasting power of attorney order while you have mental capacity to do so.
If you found this guide useful then you might like to check out these guides on:
- Attendance allowance pitfalls: how to avoid them
- Hot meal delivery for the elderly: Top 6 UK services
- What is domiciliary care?
Disclosure: You should not use this blog to make financial or legal decisions and we highly recommend you seek professional advice from someone who is authorised to provide financial and/or legal advice.
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