For You

Community Care and Caring for your Assets

Prior to April 1993, the Department of Social Security (DSS), through a higher rate of Income Support was the main source of funds for long-term residential care. Following the implementation of the NHS and Community Care Act 1990, Local Authorities became the principal budget holders for state funded long term care.

One of the reasons for this change was the cost to the Government of long-term residential care. From now on, the provision of care is added to the Local Authorities’ existing grant allocation and local tax revenue.

But how will this affect me?

As Local Authorities’ budgets become tighter they will turn more and more to the individual resident for the payment of Home Fees. Under the old DSS rules residents also had to contribute to the fees but the rules were more flexible. This can be seen with regard to the sale of a resident’s former home. Under the DSS rules an individual had a period of six months in which to sell his house. If it was still unsold a further six-month extension was given, during which time (subject to the resident’s financial position) he could apply for Income Support. Under the current rules if the home remains unsold for whatever period the Local Authority can place a Charge (similar to a mortgage) on the house to recover, with interest, any sums owing from day one.

As these restraints become tighter it is imperative that you should consider taking steps to preserve your own assets.

But how much would I be required to contribute toward the cost of residential care?

The current regulations provide for the Local Authority to assess the resident’s income and capital in the following way:-

1. If you have capital below a certain limit this will be ignored from the financial assessment.

2. If you have capital above this limit the Local Authority will treat you as having an assumed (or ‘tariff’) income. Every £250 or part of £250 over the lower limit will be assessed as though you have an extra £1 a week income.

3. If your capital goes above the upper limit you will be charged the full cost of the care home.

For the year 2008-9 the lower limit is £13,500 and the upper limit is £22,250 but this is increased each year.

There is some capital that can be ignored, the most significant of which (for the purposes of this illustration) is a house occupied wholly or partly by:-

  • a Spouse
  • a Partner or relative who is at least 60 or is incapacitated. 

In addition, the Local Authority has a discretion to ignore the value of your property where someone lives in it who does not come within the above categories.

If I go into a Home what contributions, if any, does my spouse have to make towards the Home Fees?

The Community Care Rules only cover the capital and income belonging to the individual who is moving into care. The Local Authority cannot directly seek a contribution from a spouse who does not require residential care. Similarly, the value of the house cannot be taken into consideration in this event. The Local Authority will treat half the capital of any joint accounts as belonging to the resident for the purposes of the Rules.

Although the Local Authority has no direct powers under the Act to seek a contribution, there is a general rule that spouses are liable to maintain each other. As Local Authority budgets become tighter we may well find more and more authorities going to Court to require a spouse to contribute to his or her partner’s fees.

If my contribution is based on the amount of my capital can I not give away all my property before moving in to the Home?

Under the rules, if an individual gives away assets within six months of moving into Residential Care, the Local Authority may hold the recipient of the disposed capital liable for the charges (up to the value of such assets).

If the gift took place over six months before moving into care the authority cannot make the recipient liable. But if the motivation for the gift was to secure Local Authority funding of the fees the resident will be treated as possessing the capital of which he has deprived himself.

This is called the Nominal Capital Rule. You would therefore be placing yourself in a precarious position since you would remain liable for the payment of fees but would not have the capital available to pay for them.

However, there is currently an anomaly in the law. Under the current rules, the Local Authority is primarily liable to meet the residential Home fees and the residents liability is to the Local Authority, not the Home. If a resident is caught under the Nominal Capital Rule the practical effect is merely to build up very substantial arrears of the contribution owed by the resident to the authority. The Local Authority would have no power to remove the resident from the Home.

The only option a Local Authority would have is to apply to make the resident bankrupt. Under the bankruptcy laws any gifts made within five years of a bankruptcy could be overturned.

So what should I be doing to protect my assets?

The key is to plan ahead. The longer the gap between any gifts made and the move into the Home, the greater the chance of dispelling suggestions that the gift was made for the purpose of securing Local Authority assistance.

But if you are an owner-occupier your major concern will be the protection of your own property.

Regardless of whether or not the scheme would work for the purposes of Residential Home fees there could be a real problem if one of your children should become divorced or bankrupt. You could end up losing your house. If you are thinking about giving your property away you must consider the impact this could have on your continued occupancy.

You can use your Wills to create a Discretionary Trust to protect your share of the house in the event of one spouse dying and the survivor moving into a home. You and your spouse would each leave your respective shares in the house to a Discretionary Trust. Under the terms of such a trust the trustees would have the power at any time to decide whether or not the house should be sold. Your spouse can be one of the trustees thus protecting his or her interest in the home. Should he or she subsequently move into the residential accommodation the Local Authority would only be able to assess his or her half share of the house and not the half share which is in trust. On the survivors death the trust would come to an end and the assets be distributed between your children.

Should I also consider some form of financial planning?

There will be a growing need for long term care provision in the future. It is likely that there will only be a limited level of benefits available. The Financial Services industry has responded by designing a variety of schemes and policies to meet future needs.

The problem is to determine which contract is the best for your circumstances. It is essential that you should obtain independent financial advice to plan for your future requirements. And we can put you in contact with an independent financial adviser if you would like to speak to one.