What is Deliberate Deprivation of Assets?
Following on from my last article on NHS Continuing Healthcare and in my capacity as a SOLLA (Society Of Later Life Advisers) adviser, I thought that I’d convey some information to you regarding the above, as there is very often a lot of confusion surrounding this issue and a common question that we tend to receive from many clients is, how do I protect my assets from being used to pay for care should I require it?
The starting point is to look at Annex E of the Care Act which covers deliberate deprivation of assets.
The act describes Deliberate Asset Deprivation as deliberately giving away assets/capital in order to qualify for financial support from the local authority such as deprivation of capital and/or income in order to avoid or reduce care and support charges. The act also confirms that “People should be treated with dignity and respect and be able to spend the money they have saved as they wish – it is their money after all.”
The act defines the term as, “Deprivation of assets means where a person has intentionally deprived or decreased their overall assets in order to reduce the amount they are charged towards their care. This means that they must have known that they needed care and support and have reduced their assets in order to reduce the contribution they are asked to make towards the cost of that care and support.”
Local authorities are also able to recover assets given away, from the third party that asset has been given to as follows, “Where the person has transferred the asset to a third party to avoid the charge, the third party is liable to pay the local authority the difference between what it would have charged and did charge the person receiving care.” “As with any other debt, the local authority can use the county court process to recover debts, but this should only be used after other avenues have been exhausted.”
How do councils decide if deliberate deprivation has occurred?
When deciding if deprivation was ‘deliberate’ the local authority might look at the following:
Motive/intention: when disposing of assets, was the main reason to avoid care charges?
Timing: there is no set time limit, although local authorities are unlikely to investigate too far back. Most importantly, they will look at the time between the person realising that they needed care and the disposal of assets.
Amount: was the gift a significant amount that would make a difference to a relative’s capital limit? The asset would have to be worth a significant amount for the local authority to pursue this course of action. Giving away a £300,000 property, for example, would significantly affect the individual’s total capital whereas smaller ‘gifts’ – such as giving a £300 ring to a granddaughter – are unlikely to prompt further investigation.
Can I give my assets to a Trust fund to avoid care costs?
In theory the answer is yes, as Asset Protection Trusts (APT) exist but there are many issues with these regarding the timing of when the asset, typically a Property is placed into Trust and the fact that you no longer own the assets. These have been actively promoted in recent times but some promoters have overstepped the mark and in May 2015, 8 people were jailed for mis-selling APT’s to elderly clients. Local authorities are now paying closer attention to trusts and lifetime gifts of property, so extreme care is needed before entering into any of these types of arrangements.
But some planning can be done regarding someone’s family home, if it’s jointly owned, without the use of an APT, by simply changing the ownership from joint tenants to tenants in common as detailed below.
Tenants in common • On death the value of the individuals share of the property passes to their estate/beneficiaries.
Joint Tenancy • When one tenant dies, the property automatically passes to survivor. It cannot therefore be disposed of by will or trust and the Property is always disregarded, regardless of the ownership status, if the spouse is still living there when a care fees assessment is carried out.
But what happens if they die – may be beneficial to be tenants in common.
As an example,
As Joint Tenants – Husband needs care, Wife remains in property – so disregarded for care fees and Husband’s care funded by local authority. But wife pre deceases husband in care and the Husband will then own 100% of the Property and will now have to fund all of his care, meaning that the entire value of the Property may have to be used to fund care costs and his beneficiaries will potentially then be left with nothing after the death of the Husband, unless funding can be from other sources.
As Tenants in Common – Husband needs care, Wife remains in property – so disregarded for care fees and Husband’s care funded by local authority. But Wife pre deceases her husband but she can now leave her 50% share to other beneficiaries, if ownership is via tenants in common and she has therefore protected 50% of property value by simply changing the ownership of the family home.
Obviously, this is an extremely emotive and precarious area of financial planning for most people and great care is therefore essential when considering any potential arrangements surrounding these objectives. There are various trusts and financial products, such as life assurance bonds that can be useful tools when looking at these issues as part of an overall, wider financial plan, as not all assets are automatically included within the calculation of a care fees assessment when this is carried out prior to someone needing care.
You should also note that if the state pays for your care the nursing home that you reside in is not decided by you. If you pay for your own care, you will be able to choose the home that you live in, subject to affordability.
If you should require any further information, please contact your usual adviser, or there are also many useful information leaflets that are easily obtainable from various charities such as Age UK, Independent Age etc.
I have recently discovered a publication regarding cyber scams and how to avoid becoming a victim of these which is a must read in my opinion. We have now posted a link to this publication on our website for you to have a look at, please click here
Take care everyone, and we’ll hopefully be seeing you soon!