Published: 7 April 2016
As various changes to the Inheritance Tax rules continue to come into effect, we seem to be becoming less concerned about Inheritance Tax eating into the inheritance we leave to our children and more concerned about care costs.
There have been consultations in recent years that have looked into either increasing the amount of our own money that we can keep (and not have to spend on care), or creating a cap for the amount of our money that we have to spend on care costs before the state steps in. For a variety of reasons, including the rising cost of care and pressures on central and local government budgets, none of these shows any immediate prospect of being implemented. We are therefore left with the current system: if you are not eligible for NHS Continuing Care (i.e. your care is paid for by central government through the NHS, regardless of your financial means, due to your needs being “health” related rather than “care” related – the assessment is a complicated and unpredictable one) then you will be self-funding in relation to your care until such time as your capital means drop below £23,500 – at which point your local authority will pick up the tab.
As life expectancy has continued to increase, many more of us are now living for long enough to begin to deteriorate in our mental capacity (through conditions such as Dementia and Alzheimer’s) to the extent where we require professional care in a care home rather than in our own home. That care comes at a considerable price and in many cases will continue for many years, slowly but surely reducing the inheritance that we might otherwise have wished to leave for our children. Naturally, it is important that we receive the very best care when we are in a position of needing that care and the wish to provide for our children must be balanced against ensuring our comfort in our old age. Nevertheless, many of us will want to make a priority of protecting an inheritance for our children, even at the expense of being able to fund our own care.
Needless to say, local authorities are wise to many of the strategies that have previously been used to try to protect assets from being swallowed up in care costs. If you were to give an asset (such as a savings account, investment or property) to your children and then claim poverty when the local authority seek to assess your financial means, they will – quite rightly – assume you have deliberately deprived yourself of that capital in order to avoid paying for care and will therefore set such transactions aside and continue to require you to fund your own care.
The alternatives are, perhaps inevitably, quite complicated. A trust can be set up that will allow you limited use of your wealth during your lifetime but otherwise ring fence that wealth from being taken into account by the local authority when assessing your financial means. There are Inheritance Tax implications for the setting up of such trusts, as well as considerable legal costs and the loss of outright control of your assets (including possibly the roof over your head), however this might be a price worth paying in order to potentially protect several hundreds of thousands of pounds of assets from being spent on your care instead of being passed to your children.
For example, if you are married and want to protect your home for the very specific scenario of you passing away and then your spouse needing to move into a care home, some straightforward options are available to avoid the entire value of your property being dissipated on care fees. It is possible to draft wills that protect the right for the surviving spouse to continue to occupy the family home, but ring fence the half of the property belonging to the first of you to die, so that this is preserved as an inheritance for your children and does not need to be spent on care fees by the surviving spouse.
This is a fast-changing area of law and it is difficult (if not impossible) to predict how the rules and practice in relation to care costs will change in the coming years. Having said that, we can assist you with organising your affairs now in such a way as to give you the best chance possible, under the current rules, of protecting your assets. To discuss Asset Protection Trusts and Will Trusts please contact K J Smith Solicitors on 01491 630000 (Henley on Thames), 020 7070 0330 (London), 0118 418 1000 (Reading), 01753 325000 (Windsor), 01256 584000 (Basingstoke) or 01483 370100 (Guildford).
This article was written by David Roper.