How do I plan for care home fees?
As individuals we all have different thoughts on paying for care home fees: some feel it is a burden they do not wish to spend their money on and may wish to reduce the amount they will pay, whilst others may save money in order to self-fund and give themselves the best possible options for where they will stay.
Self funding care home fees
By choosing to self-fund, if you are able to, you have greater choice about the location and quality of your care home and allows your find somewhere that suits your needs. Everybody has different thoughts and circumstances. A lot of people may live out their lives without having to move into a care home whilst others may choose other options such as remaining in their property and paying for carers to visit.
Shall I sell my home to pay for care fees?
If you are a homeowner, you may be starting to worry about whether you may be required to sell your home or use money from the sale to pay for your care home fees. You are not alone, this is a worry for many people who are growing older and wanting to leave inheritance to their loved ones. Whether this would pose an issue for you would depend on your individual circumstances of your ownership; whether that is your only property you own; if it is owned jointly or in your sole name and who is in occupation of the property.
Preserving your assets
We have set out below some general guidance on the process of assessing your financial capacity to fund your own care and how your home may factor into this assessment. We have suggested some steps you can consider taking in order to help preserve your assets.
Needs and Means Test
If you require residential care, your local council will assess your needs and your finances by way of ‘needs and means testing’. This needs and means test will calculate the overall total value of your assets i.e. your capital and income.
There are certain circumstances where your home may be exempt from being included in this means test:
- If your caring arrangements mean that you will be living at home rather than in residential care
- If you only go into a residential care home for a temporary or part-time basis
- If your partner still lives at home in the property
- If your child is under 18 years of age and is still in occupation of the property
- If a close relative either aged over 60 or incapacitated lives at the property
How much of my house proceeds can I keep?
However, if none of the above exemptions apply then the value of your home will form part of your capital for the means test. The contributory limit is currently £23,250, this essentially means that anything you own over this amount would be considered and used to fund your care fees. The laws on care charges are due to change in 2025, it is best for you to stay up to date with these changes to see how it would affect your estate.
To try and avoid this or try and limit the time you would be paying the fees until you were below the limit there are various options to consider. But each option has its own risks.
What will I have to pay for residential care
If your capital is over £23,250, you would be required to pay full fees known as self-funding.
If, however you use one of the options above or your capital is between £14,250 and £23,250 then you would contribute from income included in the means test, such as pensions, plus an assumed or tariff income based on your capital between these amounts. The council would pay the remaining costs.
However, if your capital is less than £14,250 then you would no longer pay a ‘tariff’ income based on your capital, but you must continue paying from income included in the means test. The council pay the remaining cost of your care.
Transferring a property into the joint names of your children
Under this option you would cease to have any legal ownership of the property. In the event of your death, the property would be divided between your children equally. If you needed to move into long term care then the property would, on paper at least, no longer be your asset and so would not be considered in terms of means testing.
Placing the property into joint names of yourself and your children
This option would be similar to the arrangement above but you would retain a share of the ownership so that the property could not be sold or mortgaged without you signing to confirm your agreement. If the house was sold then you would receive a share of the proceeds. This would mean you would only pay for your care fees for a shorter amount of time until you were under the threshold of £23,250, rather than if the full value of the property was being taken into account.
Transfer into trust
It is possible to transfer the property into a Trust Arrangement. Under this arrangement, you would give up any legal ownership in the property and it would be owned by Trustees. The Trustees could be your children. As with the options above, this arrangement could be open to challenge especially if they believe there has been a deprivation of assets. There is additional complexity in that the setting up of a trust must be reported to the Inland Revenue and a trust must complete its own annual Tax Return. While there may be no Capital Gains Tax or Income Tax to pay on the trust initially, there may be small ten yearly tax charges to pay depending upon the value of the property. Your children would be responsible for completing annual Tax Returns and for payment of tax although they could of course seek professional advice from an Accountant or a Solicitor.
Deferred payment agreements
If you are the sole owner of your property, you may consider deferred payment agreements. This a loan which can be arranged with the local council, where they will pay your fees and reclaim the money once your home is sold or after your death. Your council will offer this arrangement if your total wealth falls below the £23,250 threshold when disregarding the value of your property. Seeking legal advice before choosing this option is strongly advised.
Severing the tenancy of your property
If you hold your property as joint tenants you could sever the tenancy so that you own it as tenants in common. This would mean that you each would own your property in shares, for example, 50/50. In this case, you could leave your 50% share to your children in your Will and therefore after the first death the surviving spouse requires care, only a percentage of the property value would be taken into account regarding care fees.
Whichever option you consider there may be risks such as family disputes or an unexpected change in circumstances. Gifting assets can be treated as “deliberate deprivation “and so challenged or reversed.
There are no firm limits on such gifts or transfers and so there is considerable uncertainty as to the circumstances in which they may be challenged. The options above are far from exhaustive, and each involves important costs and risks to take into account. Another key consideration is whether it will be appropriate to appoint a lasting power of attorney so that a loved one may act on your behalf if there comes a time where you lack mental capacity to make decisions regarding your finances. If you are considering present or future options or would like some more information regarding the above please contact our specialist team to find out more on 0191 232 9547.