Care Avoiding Care costs

I have recently been approached by a client who has been contacted by a company to set up an arrangement that would allegedly protect their assets from care costs. The intention would be to set up a trust in their lifetime that would have the effect of protecting their estate from these potential costs. 

It is a common concern by many that all your hard earned assets could be gobbled up by the cost of care and not inherited by your loved ones as you would prefer. This is made all the more annoying when the person in the room next to you is having their costs paid for them.

There are some advisers who would recommend creating a trust where you would place a sizeable amount of your estate. These trusts can vary, but generally you would be able to continue to use the assets that have been gifted into the trust, so for example you could continue to take an income from your cash or investments to support your lifestyle. However, as a settlor, the person making the trust, would be deemed as no longer owning the assets in the trust, these theoretically could not be used for care costs.

The issue here is that it could be deemed that the settlor has deliberately deprived their estate of these assets purely to avoid these costs. If the settlor choses to be a trustee then this looks all the more suspicious as ownership of the assets falls to the trustees.  If the settlor is already in poor health and potentially needing care then there is a greater chance that this would be challenged. Even in the event that the settlor is in good health then the challenge could still be there as to why the trust was created. There is no time limit on this, although often a two year period is mentioned.

In addition to this there could also be a charge for Inheritance Tax. Placing assets in a trust like this would be deemed as a Chargeable Lifetime Transfer that could result in a 20% tax charge that is often not mentioned.

This could be thousands of pounds in addition to the charge that would be levied by the adviser for setting up the trust. In my experience this can be between £2500 and £3000, so not an insignificant amount.
This is a very complex area of financial planning and great care should be taken especially if you are approached by a company who would like to discuss this with you. Indeed and, certainly before proceeding, I would urge you ensure that that you discuss any arrangement like this with an adviser or, professional practice who can demonstrate qualifications or, accreditations for advising in the later life arena.
Kristina Bailey Dip FA CeMAP

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