Trusts and care home fees explained
The cost of care
According to current estimates, the average weekly cost of residential care is £1,298 (£5,192 per month). That equates to £67,496 per year, per person. Nursing care costs are even higher, at an average of £1,535 per month, or £79,820 per year.
If you live in England and you have more than £23,250 in assets, then you pay for 100% of your residential care. When your estate depletes to between £23,250 and £14,250, you become eligible for financial help towards your care costs from your Local Authority. Once your assets are below £14,250, the Local Authority pays for most of your care costs. There are exceptions where a patient is eligible for NHS Continuing Healthcare or NHS Funded Nursing Care.
Isn’t there a cap on care costs?
When the Care Act 2014 came into effect, it contained provisions for a lifetime cap on care costs of £72,000. This cap would not have included the costs of daily living, and any ‘top-up fees’ would not have contributed towards the cap.
The Care Act came into effect but those provisions relating to the cap on care fees were delayed. In 2023, this cap was revised to £86,000 however it was scrapped entirely in 2024 without ever having come into force.
It’s no wonder that people look to protect their assets, to make sure they leave a sizeable inheritance.
So what about a Trust?
Placing a property (or investments) into trust involves setting up a formal Trust and appointing Trustees (they are the people responsible for managing the assets and dealing with other Trust matters such as formal tax returns). Once the Trust is formally set up, asset(s) can be transferred into the Trust. Once the asset is in the Trust, the original owner no longer owns or controls it.
The other option people consider is transferring the property outright to their child(ren). Regardless of whether you gift the property into trust or transfer it directly to somebody, this is classed as a lifetime gift.
You are legally entitled to gift away any of your assets and even to continue living in the property. However, this comes with a number of tax consequences and potential risks.
The first consideration is the ‘reservation of benefit’ rules. If you are making the gift as part of your inheritance tax planning, then you must not retain any rights over the property once you have transferred it into trust or to somebody else. Therefore, if you need to continue living in that property then you would need to pay rent at the market rate. This could be an issue if you gift away your main or only home.
The second issue is the ‘deliberate deprivation of assets’ rule which applies to future residential care. If you need care then the Local Authority will assess your financial position to pay for your care if you appear to be close to the capital limit of £23,250. During the assessment you will be asked for information about your home and your other assets, and you will be asked to provide bank statements. If the Local Authority believe that you gifted away asset(s) for the purposes of limiting your care fees, then they have the power to disregard that gift and treat it as if it was part of your estate. However, there are many legitimate reasons for making substantial gifts. The Local Authority must be able to show that the primary intention behind the gift was to limit your liability for care fees, and that you would reasonably have expected to need care and support when the gift was made.
When making a substantial gift, you also need to consider your own stability and financial security. When you gift something away, you no longer own that asset and therefore it is no longer yours to control. This means you would not be able to make renovation decisions within your home, nor would you be able to take out a mortgage (such as an equity release loan).
The issue of continued stability was particularly highlighted in the case of Norma Gibbons in 2023. In 2004, Norma transferred her upstairs flat to her daughter Dawn, in the hope of avoiding inheritance tax. Their relationship broke down in 2008, and in 2017 Dawn sought possession of the flat. In 2023, after a six-year battle, Norma was ordered by the court to leave the flat. Norma had stated in court that she would not have transferred the home if she thought she could be evicted, and that she had an ‘expectation to live there for the rest of her life.’
Does this mean I can’t gift away assets?
Not at all.
Lifetime gifting can be a really effective way to mitigate inheritance tax. Trusts can be used for a wide range of scenarios including to protect vulnerable beneficiaries or to pass down assets to future generations, where limiting care costs is not the primary objective.
We always give tailored advice, including discussing the possibility of creating a Trust and/or making lifetime gifts if it would be appropriate for you.
How we can help
For further information and to arrange a non-obligation appointment please contact Rebecca Newman, Solicitor in the Wills, Trusts and Probate team on 01480 411224 or [email protected].
Rebecca Newman, Solicitor
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