The prospect of the family’s estate being eroded by the cost of care fees is a major concern for many families. We explore here what options are available and, importantly, what pitfalls to avoid.
Historically, some families faced with care fees have adopted a strategy of reducing the total value of an individual’s assets by making substantial gifts to family members. However, this is no longer an option: if the Local Authority judges avoiding care fees to have been a significant motive for the transferral of the assets in question, they will view this as deliberate asset deprivation, and will include the assets in their means test calculations.
The result of this can be that the individual on the one hand no longer has the means to fund the cost of care, having gifted away their assets, and on the other is refused Local Authority help.
The Local Authority has a range of measures it can take if it believes you have deliberately given away assets to avoid paying for care. It can put a legal charge on any property assets you have given away, or it can make you bankrupt using the Insolvency Act 1986.
Whilst in the past only a few family estates have been subject to investigation and scrutiny, the current economic climate has added its own pressures and it is expected that Local Authorities will become more diligent about pursuing potential cases of breaches of the deliberate deprivation rules.
There are often good reasons for adopting certain estate planning measures to secure an individual’s wealth for his or her beneficiaries.
Measures that mitigate liability to Inheritance Tax may at the same time limit the erosion of an estate by care fees. Such measures might include the early gifting of assets to beneficiaries, or the setting up of Trusts. Assets moved or gifted for good inheritance tax reasons should pass the Local Authority’s scrutiny.
However, it should be remembered that any measure that removes assets from the individual’s estate may also reduce the options available if and when care becomes necessary. If you have to rely on your Local Authority for funding, your care choices may be limited in terms of both location and standard of care.
Our Later Life Team of Independent Financial Advisers can help you put together a sound Inheritance Tax Planning strategy that will achieve the right balance between minimising Inheritance Tax and retaining flexibility. Contact us to find out more.