According to Age UK, the current average cost of staying in a residential care home is around £800 to £1,078 a week. These costs are average figures and can vary depending on the type of care provided and the location of the residential care home.
It is estimated that the average stay in a UK care home is between three to four years potentially leading to a cost of up to £206,976 during that time. There could therefore be little left within your estate to leave to your loved ones.
Whilst many are aware of the potential cost of care in later life, few realise the true extent of such costs or know how to effectively plan to pay for them. However, there are some steps in which you can take to plan your finances to seek to protect your estate which can reduce care costs.
Will you need to sell your home to pay for care costs?
In England, individuals with assets of more than £23,250 are currently expected to pay for their own care costs, unless you have significant ongoing health needs. Therefore, without sufficient estate planning the value of your home could be lost to pay for care costs.
The majority of couples own their home as ‘joint tenants’, meaning that on the first death, the whole property automatically passes to the survivor. Their share in the property will not pass in accordance with their Will. If the survivor then needed to go into a care/nursing home, the value of the property is likely to be valued as part of their assets by the Local Authority to determine whether that individual is liable to pay privately for their residential care or whether there would be a contribution from the Local Authority (in part or in full) to pay for such costs. However, many do not realise that you may be able to safeguard at least half of the value of your property by simply changing the way in which you own it, combined with having an effective Will.
By changing the ownership of the property to ‘tenants in common’, couples will each own a specific share in the property and this share will pass in accordance with the terms of the Will. The Will would state that upon the first death, their share of the property is to be put in a Trust but allows the survivor to remain living in the property for however long as they need to. If the survivor then needs to go into care, they should only be assessed on their share of that property (along with other assets that they hold), as half of the property will have passed into the Will Trust on the first death.
This can help certain individuals but it is not a blanket approach for all, if inheritance tax is likely to be payable on an estate, the availability of transferable allowances may be more appropriate. Therefore, advice should always be sought as to individual circumstances before making any such changes to your property ownership.
Making gifts to Avoid Care Costs (“the 7 year rule”)
Whilst many people may be tempted to gift money or property to their children as a way to avoid residential care costs you should take care when doing so as this may be considered by the Local Authority as a deliberate attempt to reduce your capital and is known as a Deliberate Deprivation of Assets.
It is often believed that if you transfer or gift assets and survive for 7 years, then those assets cannot be considered a deliberate deprivation of assets. However, this is a common misconception as there is no limit as to how far back the Local Authority can look when considering whether a gift is a deliberate deprivation of asset.
The statutory guidance which governs the assessment of income and assets states that, if you converted or transferred ownership of an asset at a time when you were fit and healthy and care was not foreseeable, then it is unreasonable for the Local Authority to consider that there has been a deliberate deprivation of assets. However, with the rising cost of social care there is no guarantee that this guidance will remain in force. It is therefore advisable to plan your affairs to provide you with peace of mind for the future and also to ensure that you still have something to pass on to your loved ones.
If you would like any further information in relation to estate planning, Wills or estate administration, please do not hesitate to contact our Trusts and Estates team on 01244 354800 or email: Heather.Lally@dtmlegal.com or Stephen.Mackellar@dtmlegal.com
