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Protecting your home from the rising cost of care fees

Age creeps up on all of us, and as the years pass by we face the unavoidable fact that there is an increasing chance of developing health problems later in life. Long term care, as the name suggests does not apply to short term illnesses but to more permanent conditions faced by the elderly such as dementia, arthritis or stroke.

Whether the illness confines you to your own house or forces a move into a care home, ultimately it is going to cost money and often, lots of it. Financial planning for long term care costs is something that we should all take very seriously as it is a far greater potential threat to your estate than inheritance tax.

The amount the state make you pay towards your care depends on what you own. Under current legislation, if you have capital of more than £23,250 you will be expected to pay the full cost and the value of your home may be taken into account to cover costs. If a person has less than this amount, the local authority will calculate how much of a contribution is required from them towards the care costs. Care home fees are approximately £500 a week (£26,000 pa) and it is predicted this is likely to rise to more than £1,000 a week over the next two decades. Many retirees worry that they will be forced to sell their house and use a large proportion of their life savings to pay for long term care fees.

As the state provides hardly any financial support many people feel pressured into giving away their home to relatives, usually their children. In doing so they are trying to ensure that their house will not have to be sold to pay for care fees. But care and legal advice should be taken before deciding whether or not to literally give away the roof over your head.

Are you thinking about gifting your home?

Your home is your most important and often most valuable asset. Before deciding to proceed you should take legal advice on all the implications, as it may not be possible to reverse should you later change your mind.

Before making any decision to gift it, you should consider these questions:

  • HOW can you ensure your right of occupation so you do not risk being forced to leave your own home.
  • HOW should you choose to make the gift – either outright or to a trust.
  • WHAT are the tax implications in respect of Capital Gains Tax, Inheritance Tax, Income Tax, Stamp Duty and Pre-owned Assets Tax for either the person giving away the house or the relative receiving the house?
  • WHAT happens if the relative falls out with you or they are influenced by others? You may think it unlikely, but things can change.
  • WHAT happens if the relative dies before you gets divorced or becomes bankrupt? There is a risk of a third party having a claim on your home.
  • The gift may affect the relative’s own entitlement to means tested benefits.
  • Any gift may not result in the house being outside of any means test for the payment of long term care fees as there are anti-avoidance provisions that may mean the authorities challenge the gift.

Selecting the right solution

Whilst it is possible to make an outright gift of your home, we would generally advise against doing so. Instead, we will typically recommend that you make the gift into trust.

A trust is a legal relationship, whereby assets (which will be your home) are held by trustees for the benefit of the beneficiaries specified in the trust deed. You will be one of the beneficiaries, which means you will be able to guarantee your right to live in your house for as long as you wish. The trustees will become the legal owners of the property and the title of the property will be transferred into their names.

Why is a trust needed?

If you make an outright gift then the above risks apply. A trust protects against these and other issues whilst also ensuring that the property could be sold before a grant of probate is obtained.

If you do want more information and advice on the contents of this article, contact Andrew Cusworth, head of our dedicated team specialising in issues concerning a gift of the family home and drafting trusts.

Find out more about our Trusts & Estates department
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