Avoiding Care Home fees.

Gifting family home into trust to avoid care home fees.

Didn't find your answer?

I missed the boat on this ;but does anyone have experience of a Council alleging deprivation of asset where the family home was gifted into a trust to avoid care home fees.A lot of financial advisors are recommending this strategy;where at the time of the "gift",there was no immediate care requirement.It seems such an obvious planning tool,but I struggle to believe that it has not been challenged.

The planning behind avoiding care home fees,has been discussed several times on this Forum.One responder asked whether you would really want your parents to end up in a Council Care Home;but there are none in my region.In my case I suspect my Dad would have rather poked himself in the eye;than gift the family home away.

Replies (27)

Please login or register to join the discussion.

avatar
By Paul Crowley
20th May 2024 11:26

This sort of stuff has been going on for 20+ years.
Planned correctly it should work
But it is up to the council to make the challenge.
No idea what forum would be the best place to find out, but I would guess a legal/solicitors' forum as they tend to be the advisors making money from it.

Thanks (2)
Replying to Paul Crowley:
avatar
By FactChecker
20th May 2024 13:37

Hmmm ... I follow your logic (last sentence), but personally wouldn't seek guidance from those with a vested interest in flogging me a scheme (that might or might not be to my advantage rather than theirs)?

Thanks (4)
avatar
By FactChecker
20th May 2024 13:23

As with much 'tax planning' the insuperable obstacle will always be ... that you are taking actions NOW to mitigate liabilities in the FUTURE (but those liabilities may by then be based on different legislation and/or operating practices).

For instance, as Paul points out "it is up to the council to make the challenge" ... and each council has its own local 'rules'. They also can decide on how to challenge - my local council (who are in general more generous than most) have recently changed the wording in the assessment questionnaire, such that 'sales of assets in last 5 years' is now about 'sales or transfers of assets' (without a specified time limit).
You can see where they're coming from ... and, whether or not they challenge at the time of assessment, they've learned from the HMRC playbook. In that they can then revisit those answers at any time - and any inaccuracies found will retrospectively invalidate the claim, leading to a LARGE bill for repayment.

BTW to quote myself from a different thread:
"DWP's view is that the only people who have no expectation of long-term care are the terminally ill (harsh but not unrealistic from an actuarial perspective)."
So the fact that at the time of the "gift" there was no immediate care requirement is window-dressing, not a guaranteed shield.

Oh and at the risk of stating the obvious ... putting the family home into a trust will cost money upfront and thereafter, plus the likelihood of higher tax bills in the future.

Thanks (3)
Replying to FactChecker:
avatar
By Paul Crowley
20th May 2024 14:43

'You can see where they're coming from ... and, whether or not they challenge at the time of assessment, they've learned from the HMRC playbook. In that they can then revisit those answers at any time - and any inaccuracies found will retrospectively invalidate the claim, leading to a LARGE bill for repayment.'
The bill for repayment can only be sent to the person in the care home.
And any charge against property can only be made against a property owned by that person.

Thanks (0)
Replying to Paul Crowley:
avatar
By FactChecker
20th May 2024 17:40

"The bill for repayment can only be sent to the person in the care home"

Well I'm only playing devil's advocate here but ... be careful with such absolutist statements (or at least the inference that others may draw from it).
It is very likely that the bill could only be sent to the person in the care home (on the assumption that they are the one who signed the assessment & claim paperwork), but:
a) for exactly that reason many councils will try to get someone else to 'co-sign' (and there have been cases of similar with mortgage/equity release where the co-signee finds themselves on the hook as though they were a personal guarantor);
b) it's increasingly common for people who go 'into care' to have previously granted a PoA (often without any of the parties understanding the responsibilities or even potential liabilities, which have been used (rarely) to chase a PoA holder personally for liabilities incurred by the person for whom they are acting).

None of that is common, but it is possible ... and the more money that's at stake the harder the impoverished council may choose to fight.

Thanks (3)
Replying to Paul Crowley:
avatar
By FactChecker
21st May 2024 16:57

Update to my previous response regarding the dangers of PoAs etc ...

As I thought, it turns out that there is a far more direct potential threat to the recipient of asset gifts where the donor then requires admission to a care home - extracted from the "Care and Support Statutory Guidance" documentation:

* "If you transfer an asset to another person (a third-party) to avoid a charge prior to the financial assessment, the third party may be liable to pay the local authority the difference between what you would have been charged and what you were charged at the time of the assessment.
However, a third-party is not liable to pay anything exceeding the benefit they received from the transfer of the asset."

Thanks (2)
avatar
By Tax Dragon
20th May 2024 13:37

From what you say you should be glad you didn't poke your father in the eye. I wonder how much it cost you, compared with what you have saved by not doing it. Do you have any idea on that?

"There are many good reasons to set up a trust – many of these are set out in our* leaflet ‘Why make a trust?’. Avoiding care fees, however, is not one of these, and you should take great care before signing up to anything."

* STEP's. Quote taken from https://advisingfamilies.org/uk/information-portal/planning-ahead/trusts...

Thanks (2)
Replying to Tax Dragon:
avatar
By Paul Crowley
20th May 2024 14:36

The problem is that the council needs to supply the service, and the financial assessment is just a funding issue.
If money has disappeared then the person at fault is the one that needs care, very difficult to get the money from wherever it went.
Threats of making the patient bankrupt really are pointless, as they are effectively doing that anyway.

If the money moved more than a year ago and there was no expectation of care need, chances are that it is successful.

Thanks (0)
Replying to Tax Dragon:
avatar
By Paul Crowley
20th May 2024 15:33

Looked at the link
Complete Blox if below is spouted an truth.
Council cannot refuse care based on prior financial matters

'If they decide against you, you could face expense, possible criminal charges, and you may be in a much worse position than you were originally, because your care costs will be charged as if you still own the asset(s), but you will in fact no longer have the asset to be able to pay for your care. In such cases, the local authority may refuse to assist with meeting the costs.'

Thanks (0)
Replying to Paul Crowley:
avatar
By Tax Dragon
20th May 2024 16:00

The rules are changing and will change further. The point of the para I wrote (not the one I copied) is similar to FC's: the planning has immediate, definite costs (including tax) and is being done for an uncertain saving that might never materialise - and may anyway be less than the costs.

Thanks (2)
avatar
By Michael Davies
20th May 2024 15:55

Some somewhat divergent views on this subject.I repeat “somewhat”.My mum s coming up to her third year in a Care Home.Costs? Well after comparing her limited income with monthly cost,I suspect she has burnt well in excess of £100000.
She s not quite the full ticket;but is reasonably compos mentis..According to her a third of the residents,don’t pay anything; however she believes the non “self funders “,are moved to less salubrious rooms.Our local council have a habit of not filing accounts;I suspect however like so many other councils,they are bankrupt.Partly because their care obligations are not fully met by Central Government.
What of our future ? Well the last time I looked one in four of us will require long term care;Boris s declaration that he was going to”fix” the care funding crisis,seems to have been buried in a deep Whitehall sink hole.Actually the last proposal which was supposed to kick in last Autumn of leaving estates with a £100 k was fair and reasonable.Although that was only going to apply to new claimants,not existing ones.I did complain to my MP about this latter provision,and one of his minions wrote back with the response that they had to draw the line somewhere.
Hey ho,death and taxes.

Thanks (1)
Replying to Michael Davies:
avatar
By FactChecker
20th May 2024 17:24

Divergent? I suspect there are the usual 'pragmatic' views and those who prefer to understand what the law says (and might be used against the pragmatic, even if it doesn't happen that often).

Your post of around 3 years ago (quoting a rather lower asset bar) already looks out of date compared to the proposals to which you refer ... which of course may never happen (and will no doubt be wrapped in sub-sub-clauses if they arrive).
Hence my comments above about planning for uncertainty - not helpful, but it is what it is.

I'm interested (personally) in the source of your "the last time I looked one in four of us will require long term care" ... in particular what it meant by 'long-term care'.
Without disclosing too much personal data here, I have already had the best part of 5 years living alone in my house whilst new medical conditions vie for discovery - and slowly move from minor to 'more limiting'.
But my council seems happy (i.e. they offered after a discharge from hospital without me making any sort of claim) to provide a free 'carer service' in order, in their words, that I can continue to live safely at home without making a much larger call on their resources. They also sent some 'assessor' person who then ticked the boxes to get simple, but useful, pieces of equipment delivered to me (for free again) ... and hassled me for nearly 6 months until I gave in and allowed them to make a claim for Attendance Allowance on my behalf. That now pays for a lovely cheerful cleaner who keeps the place spotless (and can't resist doing odd jobs in the garden or bringing me the occasional meal).

I suppose my point is that I'm doubly lucky ... my council is probably one of the best in England in this respect, and I retain all my mental faculties even as the physical ones decline. It is that combination that makes staying in my home of the last 50+ years still a possibility (and a joy). However if I ever start to need the dreaded 24-hour care, then all bets are off.
Death and taxes, indeed ...

Thanks (4)
Replying to FactChecker:
avatar
By Michael Davies
20th May 2024 18:49

Sorry to hear of your impairment.
“One in four”:of course there are lies and statistics and then there are journalists and finance advisors who highlight a statistic,without drilling down the diversity behind the categorisation of “care”.One in four under the NHS categorisation would involve some form of daily care.
This is a finance forum;but from my experience we as accountants are asked to provide pastoral advice on a variety of subjects,with only a tenuous link to finance.
I can only advise based on life experience.A friend of mine moved his father who could no longer cope ,in with him.The reality of this proved to be very difficult,including signing off my friends independence for some ten years.The contra to this was that the family wealth had been retained albeit at a considerable personal loss of independence.
We on the other hand took an opposite view.By putting my mother into care;we have to a fair extent maintained our independence ;but the wealth my father accumulated over his working life by undertaking a difficult and dangerous profession is being substantially diluted if not finally all be lost.

Thanks (1)
avatar
By More unearned luck
20th May 2024 19:19

I've picked up two clients (H&W) recently who were each (mis)sold an asset protection trust a number of years ago. They came to see me because they had moved house and had been (correctly) told that they must claim PRR re the sale of the old house. I drafted claims for them and pointed out to HMRC that the claims have been validly made outside of any return as no NTFs have been issued for the relevant year (s 42(2) TMA), that CG64206 is wrong and better guidance is given at SACM3030. Got a letter back today for one of the trusts. It says that the trust must register on the TRS as a taxable trust (presumably on the ground that the trust must now pay £0 CGT*) and that they must complete an SA return including the CG pages in order to claim PRR (no they don't - HMRC still haven't issued an NTF and now it wouldn't matter if they had).

Looking on the bright side HMRC didn't assert that a CGT return should have been made on the ground that notional tax was due as the PRR claim wasn't made within 60 days of completion. So this doesn't seem to be the reason for the assertion that the trust is now 'taxable'.

Now I have to write back to repeat my points.

*No SDLT was due on the replacement prop.

Thanks (1)
avatar
By Jakarmi
20th May 2024 20:00

My understanding is that a local council can claim deprivation of assets if at the time your parents signed the house over to the Trust that there was an expectation that one of your parents would require care in the future.

My mother in law has recently been diagnosed with vascular dementia. She has no need for a care home at present but reading the rules you aren't able to gift property or assets in the way we potentially could have before the diagnosis. A financial advisor has tried telling my brother in law down the golf club that he has the magic answer of course and "he did it with his mum"

It doesn't matter if when the house was placed into trust if there was an immediate care home need. If your Mum hadn't been diagnosed with anything when the trust was set up then I think the council haven't got a hope.

Bear in mind if it can be argued that the house being placed into trust was good IHT planning (depending on the house value) then there has been a successful case where the judge agreed it wasn't deprivation of assets. I can look up the case for you if this is relevant.

Thanks (1)
Replying to Jakarmi:
avatar
By FactChecker
20th May 2024 20:49

"If your Mum hadn't been diagnosed with anything when the trust was set up then I think the council haven't got a hope."

I know what you mean (and you'll certainly hear that opinion from many), but as I said previously what you or I 'think' doesn't provide a guaranteed shield against later interpretation by the council.
The key (lawyer alert) will be interpretation ... for instance you opened with:
"if at the time your parents signed the house over to the Trust that there was an expectation that one of your parents would require care in the future."

But most of us will only NOT "require care in the future" if death gets us first!
Or as I quoted: "DWP's view is that the only people who have no expectation of long-term care are the terminally ill (harsh but not unrealistic from an actuarial perspective)."

What I *have* heard is that any evidence that divorces the transaction from subsequent life-style will help a lot (still not a guarantee but better odds).
So, for instance, putting the large family home into trust and then buying a smaller one-storey bungalow to move into and living there for 10 years ... can be seen as highly indicative that the Trust was not just done with 'deprivation' in mind.

So any link to the case you mention would I'm sure be of general interest to all.

Thanks (2)
Replying to FactChecker:
avatar
By Jakarmi
21st May 2024 09:02

There's a lot of guidance on solicitor's websites that if you were fit and healthy (in body and mind) at the time of the transfer then it wouldn't be classed as deprivation of assets.

Council could say the motive of the transfer was to avoid potential future care fees. On the assumption the OP and his family would give another reason why the house was transferred into a trust at the time rather than admit that was the reason it would be very difficult for the Council to argue that case.

Age UK have produced a factsheet about this and the details are on page 5 of it -https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs40_d...

I can't seem to find the case I mentioned with the IHT. It wasn't about transferring a house but the giving of sizeable cash gifts. The judge ruled that the defendant didn't deprive assets as if he were healthy then it would be logical that he would do this to avoid IHT (which was held to be the motive rather than deprivation of capital).

Thanks (0)
Replying to Jakarmi:
avatar
By Tax Dragon
21st May 2024 09:12

Your home is different. You probably want to keep living in it.

Thanks (1)
Replying to Jakarmi:
avatar
By FactChecker
21st May 2024 16:47

Thank you for the link to the Age Concern guide ... as usual it is both well-written and informative.

However it does make clear that:
* The wording you want to rely on (from Annexe E) is part of guidance, not the actual regulations; and
* what it says is "deliberate deprivation should not be automatically assumed because there may be valid reasons why someone no longer has an asset and a local authority should ensure it fully explores this first."

So that, perfectly reasonable reminder not to make automatic assumptions, does not give carte blanche protection (just a need to investigate properly).

It's an area with many pitfalls (many of which are very open to interpretation) - for instance they give two interesting examples that I spotted:

* " It could be treated as deprivation if you are entitled to Pension Credit but
have chosen not to claim it. As income can be converted into capital, deliberate deprivation can relate to the tariff income calculation in the financial assessment. The local authority can consider whether doing this has had the effect of reducing what you are charged."

* "Notional income can be applied if you reach State Pension age and have a pension pot but have not purchased an annuity or arranged to draw down the equivalent maximum annuity income that would be available ... calculated ‘as the maximum income that would be available if the person had taken out an annuity’."

Anyway, good luck ... we are (I hope) straying far beyond your client's specific circumstances!

Thanks (2)
avatar
By PTA Services
22nd May 2024 07:31

So in order to claim deprivation of assets the council have to prove -

At the time of the gift, there was a reasonable expectation that the owner was going to need care; and
The gift was made in order to avoid care costs.

If these are true, and the council pursue it, then the gifter will be treated as if they still own the item / money / property as so far as for calculation of when the LA start paying care costs (or contributing to).

Tenants in common will of course ‘save’ one half of the house assuming that the will was made to allow this.

I took lots of advice from Age UK as to what I could and couldn’t do when my mother was ill, to make sure we didn’t overstep the mark. In the end, she passed away before reaching a level where the council would have stepped in, so was a moot point.

Thanks (0)
@enanen
By enanen
22nd May 2024 09:00

Councils investigate current and previous assets and if they find assets put out of reach they will refuse to pay out towards care home fees.

Thanks (0)
Morph
By kevinringer
22nd May 2024 09:54

Op asks "... does anyone have experience of a Council alleging deprivation of asset where the family home was gifted into a trust to avoid care home fees". In answer, no. I've not known the Council to take action against any client. I don't advise on actions to avoid care home fees because it is a legal matter and not accounting/tax, so I tell the client to consult their solicitor. It's a difficult area to advise on because according to the ONS, only 2.5% of the elderly population go into care, so it only affects 1 person in 40, but when it does affect that person, it is in effect 100% tax on wealth whilst they continue to live. So, relatively few people will be affected but it will be expensive for those who are affected. Whilst I have not advised clients (other than to consult their solicitor), I have discussed it with clients and pointed out that if the client has financial means, they may be able to chose a care home of their choosing rather than somewhere they might not have chosen. Anyway, returning to OP's question, I have often wondered why Councils don't do more because at the end of the day, we taxpayers have to pay for whatever is not recovered. I guess this a Council mindset/working practice thing.

Thanks (0)
Replying to kevinringer:
avatar
By Tax Dragon
22nd May 2024 10:41

Someone with significant means may be charged a tax rate of only 60% (in some cases less than that) of their care spend.

Thanks (0)
Replying to kevinringer:
avatar
By Michael Davies
22nd May 2024 10:51

Interesting,1 in 40 need residential care ?I think it is probably a bit higher than that;however drilling back to the NHS commentary of 1 in 4 requiring long term care;that must mean the majority receive care in the home.Let’s say the daily visits average out at about two a day,and say costs run to £25 a visit (slightly high );about £1500 a month ?How could the average “customer”,afford that ?Presumably the Council then put a charge on the house,and we are back to diminution of family wealth ,and a more common experience.Actually my Mum needed four visits a day,and we never actually exceeded the 6 week free period.TBF £1500 @ month works out at a quarter of my mums residential costs.

Thanks (1)
Replying to Michael Davies:
Morph
By kevinringer
22nd May 2024 11:13

My 1 in 40 was from 2nd bullet point of section 1 of https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarri....

Thanks (0)
Replying to Michael Davies:
avatar
By FactChecker
22nd May 2024 15:56

I agree that it sounds as though the vast majority of 'care needs' are addressed via services 'in the home' rather than 'in a residential care home' - which tallies with my unscientific observations.

But "Let’s say the daily visits average out at about two a day, and say costs run to £25 a visit (slightly high);about £1500 a month" is I suspect highly optimistic.
My council (the generous one if you recall) offer a wide range of hours/visit and visits/day or visits/week - but, for non-medical needs, the carers are supplied by agencies to whom the council have sub-contracted ... and at NLW £25 doesn't leave the kind of margin to which agencies usually aspire.

The important bit being that 'deprivation of assets' is on the radar for more than just 'residential home care' costs.

Thanks (2)
Replying to FactChecker:
avatar
By Paul Crowley
22nd May 2024 16:37

It used to be cradle to grave.
Sadly no more.
The problem as I see it is the effect on the ordinary careful person is quite major, but nil on the spendthrift.

Thanks (0)