Protecting your estate from care costs

AgeUK Briefing: Health and Care of Older People in England 2017 suggests that 1 in 4 of us will need some form of care or assisted living in our old age (85+) so maybe we need to be nice to our children otherwise we could end up somewhere that wasn’t at the top of that particular wish list! 

But how do you balance the need to maintain your lifestyle now, in retirement, and ensure you have enough to pay for the seemingly ever rising cost of care, AND be nice to your family?

Searching for the ways to reduce our asset values (whilst contradictory to the main trust of financial planning, being to grow capital and income) has become popular amongst those looking to avoid care fees altogether or to at least have the state contribute something to their care costs. Many will cite for example “I’ve paid into the system all my life so why shouldn’t the government pay for my care costs?”

A commonly mentioned solution here is to place the home in which we live in, into some sort of ‘property trust’ which then, in theory, excludes it from the value of our estate when the Local Authority comes to means test our funds for financial assistance for our care provision.

Let’s create an example. Let’s consider Mary, an 85-year-old widow, living in her own mortgage free home valued at £400,000. She has reasonable pension income of around £16,000 per annum and savings of around £50,000. Having coped with living alone for five years since her husband died she is becoming frail, has mobility issues and is struggling with day to day living. She’s not ill as such, so no assistance from the NHS but after much deliberation and discussion with her family it is decided that moving into a care home is the most sensible move for her.

Mindful that her total assets exceed the current threshold of £23,250 (England) where typically a local authority would assist, and with quoted care costs of £45,000 per annum she does not wish the value of her property to be included in the means test to fund her care once her savings are depleted and would rather pass this on to her children, so she enquires about transferring the ownership of her home into a trust for the benefit of her family. The idea being of course that this would ensure that her children benefit from a substantial asset when she dies as the property would not be included in her overall asset total for the purposes of funding her care. What a great idea! If only life were that simple.

If you are going to live or are considered likely to live in a care home and intentionally deprive yourself of a capital asset, such as your home, in order that you pay less in care home fees, your Local Authority may conclude that the asset is still owned by you.

Essentially it could be the conclusion that Mary deliberately deprived herself of capital so that she did not have to pay the entirety of her care fees. Local Authorities are now fully aware of the steps that are being taken by some to mitigate or avoid costs and are vigorously challenging cases where they believe deliberate deprivation may have taken place. With limited resources you can understand their desire to ensure that they don’t see their costs spiral.

When the Local Authority carries out Mary’s financial assessment to determine how much funding she should receive, they will ask her whether she owns or has ever owned property. When the answer is yes, then further enquiries would be made.

But it’s not just property that is given away to avoid care costs, so the Charging for Residential Accommodation Guidance for Local Authorities, referred to as CRAG, gives examples of what constitutes deprivation:

  • A lump-sum payment has been made to someone else – for example, as a gift or to repay a debt;
  • Substantial expenditure has been incurred – for example, on an expensive holiday;
  • The title deeds of a property have been transferred to someone else; or money has been put into a trust which cannot be revoked.

In the example above it is clear that the decision to place the property into Trust was taking place at the point of Mary going into care, and clearly there was an obvious link, but what if the property had been placed into trust when her husband died five years earlier? There is no real restriction on how far back the Local Authority can go when looking at possible deprivation of assets so it’s more about the timing of and reason for the disposal of the asset. The circumstances leading up to a disposal and whether it might be considered reasonable for you to foresee care needs will also be considered.

So, in summary, if you are considered to have deliberately deprived yourself of capital and assets you will be assessed as having “notional capital” which, if when added to your actual capital amounts to more than the allowed threshold then the Local Authority is likely to conclude that you are liable to meet the full cost of your own care.

Of course, there are other reasons for disposing of capital in your lifetime, including the desire to reduce the impact of Inheritance so it’s crucial for anyone in this position to take sound legal and financial advice to assess your long-term needs, to identify whether you have the scope to give away capital and the consequences of doing so.

Interestingly, if you opt to receive care in your own home the value of your property is excluded from the financial assessment, and if you are married then special rules apply to ensure that your spouse doesn’t lose their home as a result of your care needs.

If you or someone you know is likely to need care in the future do get in touch so we can guide you through this complex and increasingly relevant area of financial planning.


Mark Ireland Chartered ALIBF


This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.