Long Term Care

The Problem

The provision of long term residential care is means tested and in the worst case, can leave an individual with as little as £14,250 to pass on to their family. Most people are anxious that their wealth passes to the next generation rather than to the Local Authority.

The house is not included in the means test whilst a spouse (or a dependant over 60 or under 18) is living in it so the problem occurs when one spouse has died and the whole of the joint assets have passed to the survivor. If that survivor needs long-term care, they will have to fund it themselves from a fixed amount of capital. With care fees currently averaging around £25,000 per year, a figure that increases with inflation, it is not difficult to see how the family's inheritance is at risk.

Lets give the house to the Kids

Often the first solution people think of is to give their house to the children. There are many problems

• If the children become divorced or bankrupt then your house forms part of their divorce or bankruptcy settlement

• You give up your independence. You will have to ask the children's permission if you want to move home and it is always possible that the children may wish to get their hands on their inheritance rather earlier than you had planned!

• Any increase in value in the home will attract capital gains tax as your house is not the main residence of your children

• If one of your children dies before you then his or her spouse may inherit some or all of your house and then possibly leave it to their new spouse!

A Better Alternative

There are 2 ways in which we can help.

The Property Protection Trust Will

We can write Wills for a couple sharing the ownership of their home in which they each leave their share of the house in trust normally for their children.

It is important that nothing is done to place the survivor at a disadvantage in later life. The Trust Will protects the interest of the survivor in 4 important ways:

• The survivor has a right to live in the house for as long as he/she wishes.
• The survivor can sell the home and buy another
• The survivor can sell up completely, perhaps to move to rented sheltered accommodation. They have absolute rights over their own share of the capital, which they can spend in any way they wish. They have the right to take the income generated by the share of the capital, which is held in trust. The only part of the assets that they cannot spend is the actual capital held by the trust. They would need the agreement of the Trustees to accesss the capital held in trust.

If the Survivor Needs Long-term Care

In the event that the survivor needs long-term care then the means test will result in them having to pay the fees until, in the worst case, they have only £14,250left but when they eventually die the family would inherit the £14250 that that person has left PLUS the half of the value of the home which is held by the trust.

The Palphrey Case

A Local Authority (LA) conducted a means test on a Mrs Palphrey. Her late husband had left his half of their home in trust. The LA deemed that as Mrs P owned half a house she had the means to pay her own fees. Mrs P argued that she could not sell a half interest in a house and it was therefore valueless. The Court ruled her favour. This precedent means that provided the family home has not been sold then it is now possible to protect it entirely from the cost of care.

The Property protection Trust Will is very effective but you need to be aware of some issues

• It only works for couples. We cannot use this for single people
• It may leave up to half your assets exposed
• There is a risk of both of the couple needing care in which case everything is exposed.
• There will be a need for additional probate and administration on first death.
• It may create problems if you later wish to take advantage of equity release.

Note of Caution

As with all such measures we can only advise on the basis of current legislation, case law and practice. Things can change.

There are many variables and no one solution fits every situation but we at North Country Wills have exceptional knowledge and expertise to find the best answer for you.