Asset deprivation to avoid care costs
As studies indicate the average annual care home cost at £30,000, the likelihood of elderly people being forced to sell their homes increases.
The data by Prestige nursing indicates that costs are rising ten times faster than pensioner incomes with an average room price growing by 5.2% or £1,536 over the past year. This means even the wealthiest of pensioners are having to put their homes up for sale in order to meet the cost of care they require.
If an individual lacks property to sell however, the funding of their care cannot be provided for through the sale of their home and they therefore qualify for state support. People are thus increasingly analysing the ways in which their home can be saved, largely through the means of gifting.
For many home owners, prior to entering residential care, they may pass on their home by creating a trust with their children as the beneficiaries. This involves altering the joint ownership of the property to tenants in common, which in turn allows the individual’s share of the property to be left to someone specified in their will.
A ‘flexible life interest’ is then created for the individual’s spouse. This allows them to remain living in the property for the remainder of their life should their partner die, with the deceased’s share being held in trust. Should the remaining partner eventually need to go into care, the local authority (LA) would only consider their share of the property, which would expectedly be reduced to nil. This is due to the unlikelihood of anyone wishing to buy this respective share.
Gifting the property may also be an option individuals choose to use. If they continue to live 7 years after giving away the property it will no longer be counted towards the value of their estate and thus not considered within the governmental means test. They are still permitted to reside in the property as long as they do so for at least 7 years, pay their share of bills as well as rent – in line with similar properties in the area. If the new owners – likely to be children – also live in the property, rent may not have to be paid.
This “solution” is not without its own potential flaws. If the new home owners were declared bankrupt or wished to get divorced, they may decide to sell the home and ultimately force the original owner out. In cases where parents are continuing to live in homes they have gifted to their children, the success of the arrangement is greatly dependent upon the relationship between all parties involved.
Also, not everyone may be aware of the various criteria gifting must meet in order to adequately dispose of an asset. Where an individual ceases to possess an item that would have otherwise been accounted for during financial assessment, deliberate deprivation may be considered where the asset has now been disregarded.
LA awareness around such transfers has significantly grown. Asset deprivation – which can include the gifting of money and excessive spending – has been means tested by the Government and through LAs since April of last year. The Care Act 2014 governs whether the LA chooses to charge an individual in order to provide for their relevant needs. Financial assessment usually occurs where someone needs to reside in a care home on a permanent basis and will in turn be tested to ascertain if their contribution to the care cost is necessary. This may be done through calculation of income, savings and other capital by the LA.
Changes to the means test were initially planned to come into force in 2016 as stage two of the reform process – affecting care funding – which was due to follow the Care Act’s implementation. This has been delayed until 2020 and has thus resulted in the new means test bearing much similarity to the previous one.
As the law stands, any capital and savings below £14,250 are disregarded in the means test, whereas those which cumulatively value above £23,250 will result in the potential care resident having to fund all of their own social care. Anyone possessing an amount between these two figures is assessed according to a sliding scale with eligibility for council contribution.
Where an individual has deliberately transferred an asset from their name to improve their position in regards to the LA’s means test, this can be classed as deliberate deprivation and although such conduct may not always be taken into account, in some cases can lead the LA to suspect intention to avoid payment.
To assess whether this is the case, the LA will look to statutory guidance in order to establish whether the deprivation was indeed deliberate. Avoiding care charges is not seen as an isolated motive to when eligibility is being assessed.
Intention must be a significant factor when transfer of an asset takes place in order for the LA to truly class the giving away as deliberate deprivation.
The LA may conduct its own investigations should it feel it requires more information to assess the circumstances. These may include when the asset was disposed of and whether the need for care was reasonably expected as well as an expectation in needing to contribute toward the care cost.
If transfer of an asset occurred during a time where the potential resident was fit and well, the statutory guidance confirms it would be unreasonable to find the motivation to be related to care cost avoidance. The need for support at this time could not have been foreseen.