1st May 2019

Care home fees pilfering your children's inheritance

 The cost of care home fees have increased by 20% over the past five years to an average cost of £26,000 per year.

The local authority is only responsible for covering the full cost of residential care for those with capital assets below £14,250. For those with capital assets with a value of between £14,250 and £23,250, the local authority will make a contribution towards the cost of residential care. The Local Authority won’t pay your care home fees if you have capital assets over £23,250.

Life Interest Trusts are often used to try and avoid the full impact of paying for care home fees.  Many couples own their home as joint tenants.  This means that should either partner die, the surviving partner will automatically become the sole owner of the property.  By severing the joint tenancy, a couple can own their home as tenants in common.  This means each partner will own a distinct share in their home (i.e. 50% each) which can be left in their Will to their relatives on trust. Whichever partner survives the other can be left with a 'life interest' in the share of the property held by the Trust.  This enables the surviving partner to live in the property rent free for the rest of their life.  Importantly, on the basis of current legislation, the local authority will not take into account the value of the share in the property held by the Trust. This means that the local authority’s financial assessment for the funding of residential care for the surviving partner will only take into account half the value of the home.

Issues to consider

There are various issues connected with leaving a property to a Life Interest Trust:

  • Whilst an individual is paying their own residential care home fees, they will have some degree of control over the type of home in which they live.  However, once a person can no longer afford to fund their own fees, the local authority may determine where they will live. This could mean an individual being moved to a less expensive care home.  If a couple each leave their share in their home to a Trust, the surviving partner will have fewer funds with which to fund their own care home fees.
  • A couple will not benefit from the protection offered by a Life Interest Trust if they both enter residential care at the same time.  In this instance, each would have their financial means assessed and each share of their home will be taken into consideration by the local authority.
  • There are some administrative provisions involved in establishing and administering the Life Interest Trust.  Following the first death, should the home be sold, the Trustees will be responsible for investing the proceeds of sale. The surviving partner will be entitled to all income produced by the investments which would need to be reported to HMRC by the trustees.

For advice or more information, contact Elizabeth Evans.

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