Long term care could cost your estate more than inheritance tax
Written by Cindy-Marie Leicester on October 24, 2016.
Estate planning is an extremely important part of a sound financial plan and it is prudent for those with large estates to arrange their affairs carefully to minimise their inheritance tax liability. However, the inheritance tax threshold in the UK is now £650,000 for a couple with transfers between spouses exempt and set to rise. That means that IHT is essentially a problem for the wealthy with many families not impacted by it at all.
The cost of long term care when individuals become too old and infirm to look after themselves is, however, another story. As we live longer, this is an increasingly likely scenario for many elderly people. And it’s not cheap.
When an elderly person requires care, they undergo an assessment of their care needs and their income and capital, which includes the value of their home. Anyone with savings or assets in excess of just £23,250 will be expected to pay for their own care. Plans due in April 2016 to introduce a lifetime cap on care costs of £72,000 (which doesn’t include bed and board) have been delayed by the government until 2020 which means that at present there is no limit on how much long term care could erode your savings and the value of your estate.
It is common for parents to consider giving their home away to their children to avoid it having to be sold to pay for care costs. However, this is problematic. When assessing eligibility for assistance, local authorities are able to take into account ‘deliberate deprivation of assets’ which basically means that if you try and pass your property on to your children, or set up trust funds to ring-fence assets, these can still be taken into account for a long term care assessment even if the asset is by then owned by someone else.
The case of Beeson v Dorset County Council set a precedent showing that timing is key when gifting a home to your children. At the age of 90 Mr Beeson transferred his house to his son shortly after suffering a stroke but continued to live in the home for two and a half year years until his condition deteriorated and he was deemed to require residential care. The council took the case to court arguing that deliberate deprivation had occurred when the house, which could have funded Mr Beeson’s care, was gifted to his son.
The conclusion of this case were that ‘deprivation’ exists when a gift leads to a reduction in resources to pay care costs which are known by the donor to be likely to arise in the near future. The judge stated that ‘I do not see how an applicant could be found to have the relevant purpose unless he was aware of the possibility that he might be provided with accommodation and that he might be liable to pay for it’. This makes it clear that the timing of a gift is crucial, as is retaining the right to live in the property.
With an ageing population and government resources stretched to the max, the issue of funding long-term care is not going away. It’s worth taking time to consider how you will deal with the problem. If you are looking for a solution to gift your assets to your children to avoid them being eroded by long term care costs you need to take professional advice from a specialist in the field to ensure that everything is done in the correct way.
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