No one likes to imagine that they will be unable to care for themselves as they get older, but it is an unfortunate reality for many people. Care costs can be expensive, and the only help available from your local council will be means-tested. The means test looks at your income, savings and assets, which will include your home if you own it and might also take account of valuable possessions, such as jewellery. Often, people who own their own home are ineligible for support, especially because house prices have continued to rise over the years. In these cases, the only way to cover the cost of your care might be to sell your property.

Naturally, this comes with its own challenges. For example, selling your family home may mean letting go of important memories, which most people would prefer to avoid. Further, selling the property will eat into your children's inheritance and if the value of your property does not exceed your care costs, you may be left with nothing to give them. 

On the other hand, there are several legal approaches to protecting assets that can prevent your home being assessed as part of a means test for care costs. Here, the expert trusts and estate management team at Percy Hughes & Roberts Solicitors explains how the local authority financial assessment works, and how to protect particular assets from being assessed towards the cost of nursing care when you get older.

How does the means test for care fees work?

If a person intends to move into a residential care home, they may be subject to a financial assessment to ascertain whether or not they are eligible for monetary support. Paying for care home fees can be expensive, but local authorities may offer financial help to people who cannot afford them. The means test does not take into account all of your assets - for example, certain disability benefits are disregarded when making the calculation - but it will include the value of your property in most cases. Your home will form part of the assessment if you are moving into a care home, and if you do not have a spouse or partner who wishes to remain living in the property. In the latter cases, the property may qualify for a spouse exemption and might not be considered as part of the means test.

If the house becomes part of the financial assessment, the local authority assigns a value to it. If the property is jointly owned, this value is based on the individual’s share of the property, not the full market value. If the combined value of your property and your other assets falls below the lower capital limit (£14,250 in England), you will be eligible for maximum financial assistance. You can still contribute more money to your care costs if you want to supplement the quality of the care you receive. If the value of your assets is above the upper capital limit (£23,250), you will usually need to pay for your own care without financial support.

For the first 12 weeks after you move into a care home, you will have time to decide how to fund your care. If you are not eligible for financial help, you may decide to sell your home or enter into a deferred payment agreement with the local authority. You may be able to make a deferred payment agreement if your house is included in the means test but you do not wish to sell it immediately. The care home fees are effectively loaned by the local authority and repaid later when the house is sold or after you pass away, depending on the terms of the agreement.

Naturally, many people would prefer not to sell their property and secure financial support to help with care costs. The upper threshold for care assistance is relatively low when property is included in the assessment. Thankfully, there are several approaches that can protect your property and prevent it from being included in these calculations. It is important to consider all of the potential legal ramifications of any such decisions and consult with a solicitor before you move ahead.

What strategies can you use to prevent a property from being assessed in a means test?

As we have noted above, if you are married or in a civil partnership, and your spouse or partner will continue to live in the property when you move into residential care, the home will not be assessed. Otherwise, there are a number of approaches you might consider:

Equity release or lifetime mortgage

Using an equity release scheme or lifetime mortgage, a homeowner can release funds from their home and thereby reduce its value. This will also generate a significant amount of cash that can be used to cover the cost of your care home or other costs. This will not protect your home entirely from assessment, but it will reduce the amount of equity in the home that the local authority could include in the financial assessment.

Renting out the property

Renting out the property is a different way to overcome this challenge. Rather than preventing the home from being assessed, it simply provides a different way to cover the costs of your own care in lieu of local council payments. Rent would generate income that can help to pay for care home fees without you selling the home. The rental income would also be counted in the financial assessment, however, so it is important to consider how this would affect your overall position.

Transfer ownership to a family member

One common approach is to transfer ownership of the property to a family member, but this must be done well in advance of any need for care. The transfer should ideally happen years before any foreseeable need for care, as transfers done close to the time of requiring care could be challenged by the local authority. If the council thinks you transferred the property intentionally to avoid paying care home fees, the value may still be included in the assessment. This is known as the "deliberate deprivation of assets" rule.

On the other hand, transferring the property to someone else can have complicated side effects. If you die within seven years of the transfer, the person will need to pay Inheritance Tax on the property, which may represent a hefty and unexpected expense. Further, once you no longer own the property, there is always a risk that a dispute with the owner means you will be evicted from what was once your home. Without any control over the property, you do not have the same guarantees that you will be able to live there, which can make this approach very risky and it is not something that we would typically advise.

Set up a trust

Placing the home into a trust can sometimes protect it from being assessed for care home fees. The same rules around deliberate deprivation of assets would apply to this kind of transfer. This works by transferring ownership of the property into a legal entity that holds and manages it for the benefit of named beneficiaries (usually family members). Life interest trusts in wills are most commonly used for this purpose, as this type of trust allows a person to live in the property for the rest of their life without owning it entirely. Once they pass away, the ownership of the property passes to the beneficiaries named in their will. Life interest trusts must be drawn up properly and require careful consideration to make sure they function as you intend. As such, it is best to work with a solicitor when planning how you will protect your assets, long before you may need to move into a nursing home.

A more flexible type of trust is the discretionary trust, where trustees have discretion over when and how the property or income is distributed to beneficiaries. If you know your trustees well and believe they will handle trust assets according to your wishes, this approach can work out well, but without a carefully worded trust agreement there is also a risk in these cases that you could be evicted from your own home. 

As we have noted, transferring property and setting up trusts may have tax implications, including for Inheritance Tax and Capital Gains Tax. You should carefully evaluate the financial consequences of these decisions, as they may result in greater losses than gains. Speak to a solicitor who specialises in trusts for help in evaluating all of the potential outcomes of each decision. They can help you with wider estate planning and management to make sure the maximum value of your estate passes to your ultimate beneficiaries when you die, and to help you retain control over your property and other assets should you ever need full-time nursing care.  

How can a life interest trust protect your property? 

A life interest trust separates the ownership of a property from the right to live in it. In this way, it can help to protect a property from being included in the financial assessment for care home fees. A life interest trust is usually set up through a will or as part of estate planning. It allows a person (called the life tenant) to live in or receive income from a property for the rest of their life. However, they do not own the property outright - once it has been transferred into the trust, it will be owned by the trust.

This can also be used by property owners who wish to enable a spouse or civil partner to live in the family home after they die, without that person inheriting it outright. When the life tenant's interest ends (which typically means when the life tenant dies), the property will pass to the ultimate beneficiaries. These are usually the children or other loved ones of the life tenant, and this can help to make sure your final wishes are carried out. If the surviving spouse remarries and has inherited the property, they would be free to do with it as they wish (including giving it to their new spouse) unless it is protected by a life interest trust.

In cases where you want to protect your home from assessment, transferring it into a trust changes the ownership and removes its value from your assets. If the life interest trust is used by a couple as part of a will, this can affect the financial assessment in a few ways. Only one partner's share of the property would pass into the trust when they die, but this means that if the surviving spouse needs to move into a care home, only their half of the property value is included in the financial assessment - much as it would be if the other spouse was still alive.

If a trust owns all or part of the property, the local authority cannot force the sale of the home to pay for care fees. The local authority only assesses the assets owned outright by the person going into care, not assets that are held in trust for someone else. This protects the inheritance of the trust's beneficiaries, as the trust owns the share that is intended for them.

This approach requires a number of considerations. The tax implications of the trust are important to take into account. Similarly, the timing is crucial. If the local authority believes that assets were transferred into a life interest trust to deliberately avoid paying care home fees, they may be able to claim these assets. Finally, the trust must be carefully drafted to ensure it is legal and respected by the relevant parties. If the trust was established as a reasonable estate planning measure, long before there was any need to consider care home fees, the local council will not be able to access the assets it contains.

If you need advice about a life interest trust or any other estate planning matter, or on preventing property from being assessed towards the cost of nursing home or care home fees, speak to Percy Hughes & Roberts Solicitors today. We offer a range of legal services to support effective estate planning, and can help to ensure the beneficiaries of your estate enjoy the maximum value of your estate assets. Call us on 0151 666 9090, or use our Get in touch form to request a call back at your convenience.

No one likes to imagine that they will be unable to care for themselves as they get older, but it is an unfortunate reality for many people. Care costs can be expensive, and the only help available from your local council will be means-tested. The means test looks at your income, savings and assets, which will include your home if you own it and might also take account of valuable possessions, such as jewellery. Often, people who own their own home are ineligible for support, especially because house prices have continued to rise over the years. In these cases, the only way to cover the cost of your care might be to sell your property.

Naturally, this comes with its own challenges. For example, selling your family home may mean letting go of important memories, which most people would prefer to avoid. Further, selling the property will eat into your children's inheritance and if the value of your property does not exceed your care costs, you may be left with nothing to give them. 

On the other hand, there are several legal approaches to protecting assets that can prevent your home being assessed as part of a means test for care costs. Here, the expert trusts and estate management team at Percy Hughes & Roberts Solicitors explains how the local authority financial assessment works, and how to protect particular assets from being assessed towards the cost of nursing care when you get older.

How does the means test for care fees work?

If a person intends to move into a residential care home, they may be subject to a financial assessment to ascertain whether or not they are eligible for monetary support. Paying for care home fees can be expensive, but local authorities may offer financial help to people who cannot afford them. The means test does not take into account all of your assets - for example, certain disability benefits are disregarded when making the calculation - but it will include the value of your property in most cases. Your home will form part of the assessment if you are moving into a care home, and if you do not have a spouse or partner who wishes to remain living in the property. In the latter cases, the property may qualify for a spouse exemption and might not be considered as part of the means test.

If the house becomes part of the financial assessment, the local authority assigns a value to it. If the property is jointly owned, this value is based on the individual’s share of the property, not the full market value. If the combined value of your property and your other assets falls below the lower capital limit (£14,250 in England), you will be eligible for maximum financial assistance. You can still contribute more money to your care costs if you want to supplement the quality of the care you receive. If the value of your assets is above the upper capital limit (£23,250), you will usually need to pay for your own care without financial support.

For the first 12 weeks after you move into a care home, you will have time to decide how to fund your care. If you are not eligible for financial help, you may decide to sell your home or enter into a deferred payment agreement with the local authority. You may be able to make a deferred payment agreement if your house is included in the means test but you do not wish to sell it immediately. The care home fees are effectively loaned by the local authority and repaid later when the house is sold or after you pass away, depending on the terms of the agreement.

Naturally, many people would prefer not to sell their property and secure financial support to help with care costs. The upper threshold for care assistance is relatively low when property is included in the assessment. Thankfully, there are several approaches that can protect your property and prevent it from being included in these calculations. It is important to consider all of the potential legal ramifications of any such decisions and consult with a solicitor before you move ahead.

What strategies can you use to prevent a property from being assessed in a means test?

As we have noted above, if you are married or in a civil partnership, and your spouse or partner will continue to live in the property when you move into residential care, the home will not be assessed. Otherwise, there are a number of approaches you might consider:

Equity release or lifetime mortgage

Using an equity release scheme or lifetime mortgage, a homeowner can release funds from their home and thereby reduce its value. This will also generate a significant amount of cash that can be used to cover the cost of your care home or other costs. This will not protect your home entirely from assessment, but it will reduce the amount of equity in the home that the local authority could include in the financial assessment.

Renting out the property

Renting out the property is a different way to overcome this challenge. Rather than preventing the home from being assessed, it simply provides a different way to cover the costs of your own care in lieu of local council payments. Rent would generate income that can help to pay for care home fees without you selling the home. The rental income would also be counted in the financial assessment, however, so it is important to consider how this would affect your overall position.

Transfer ownership to a family member

One common approach is to transfer ownership of the property to a family member, but this must be done well in advance of any need for care. The transfer should ideally happen years before any foreseeable need for care, as transfers done close to the time of requiring care could be challenged by the local authority. If the council thinks you transferred the property intentionally to avoid paying care home fees, the value may still be included in the assessment. This is known as the "deliberate deprivation of assets" rule.

On the other hand, transferring the property to someone else can have complicated side effects. If you die within seven years of the transfer, the person will need to pay Inheritance Tax on the property, which may represent a hefty and unexpected expense. Further, once you no longer own the property, there is always a risk that a dispute with the owner means you will be evicted from what was once your home. Without any control over the property, you do not have the same guarantees that you will be able to live there, which can make this approach very risky and it is not something that we would typically advise.

Set up a trust

Placing the home into a trust can sometimes protect it from being assessed for care home fees. The same rules around deliberate deprivation of assets would apply to this kind of transfer. This works by transferring ownership of the property into a legal entity that holds and manages it for the benefit of named beneficiaries (usually family members). Life interest trusts in wills are most commonly used for this purpose, as this type of trust allows a person to live in the property for the rest of their life without owning it entirely. Once they pass away, the ownership of the property passes to the beneficiaries named in their will. Life interest trusts must be drawn up properly and require careful consideration to make sure they function as you intend. As such, it is best to work with a solicitor when planning how you will protect your assets, long before you may need to move into a nursing home.

A more flexible type of trust is the discretionary trust, where trustees have discretion over when and how the property or income is distributed to beneficiaries. If you know your trustees well and believe they will handle trust assets according to your wishes, this approach can work out well, but without a carefully worded trust agreement there is also a risk in these cases that you could be evicted from your own home. 

As we have noted, transferring property and setting up trusts may have tax implications, including for Inheritance Tax and Capital Gains Tax. You should carefully evaluate the financial consequences of these decisions, as they may result in greater losses than gains. Speak to a solicitor who specialises in trusts for help in evaluating all of the potential outcomes of each decision. They can help you with wider estate planning and management to make sure the maximum value of your estate passes to your ultimate beneficiaries when you die, and to help you retain control over your property and other assets should you ever need full-time nursing care.  

How can a life interest trust protect your property? 

A life interest trust separates the ownership of a property from the right to live in it. In this way, it can help to protect a property from being included in the financial assessment for care home fees. A life interest trust is usually set up through a will or as part of estate planning. It allows a person (called the life tenant) to live in or receive income from a property for the rest of their life. However, they do not own the property outright - once it has been transferred into the trust, it will be owned by the trust.

This can also be used by property owners who wish to enable a spouse or civil partner to live in the family home after they die, without that person inheriting it outright. When the life tenant's interest ends (which typically means when the life tenant dies), the property will pass to the ultimate beneficiaries. These are usually the children or other loved ones of the life tenant, and this can help to make sure your final wishes are carried out. If the surviving spouse remarries and has inherited the property, they would be free to do with it as they wish (including giving it to their new spouse) unless it is protected by a life interest trust.

In cases where you want to protect your home from assessment, transferring it into a trust changes the ownership and removes its value from your assets. If the life interest trust is used by a couple as part of a will, this can affect the financial assessment in a few ways. Only one partner's share of the property would pass into the trust when they die, but this means that if the surviving spouse needs to move into a care home, only their half of the property value is included in the financial assessment - much as it would be if the other spouse was still alive.

If a trust owns all or part of the property, the local authority cannot force the sale of the home to pay for care fees. The local authority only assesses the assets owned outright by the person going into care, not assets that are held in trust for someone else. This protects the inheritance of the trust's beneficiaries, as the trust owns the share that is intended for them.

This approach requires a number of considerations. The tax implications of the trust are important to take into account. Similarly, the timing is crucial. If the local authority believes that assets were transferred into a life interest trust to deliberately avoid paying care home fees, they may be able to claim these assets. Finally, the trust must be carefully drafted to ensure it is legal and respected by the relevant parties. If the trust was established as a reasonable estate planning measure, long before there was any need to consider care home fees, the local council will not be able to access the assets it contains.

If you need advice about a life interest trust or any other estate planning matter, or on preventing property from being assessed towards the cost of nursing home or care home fees, speak to Percy Hughes & Roberts Solicitors today. We offer a range of legal services to support effective estate planning, and can help to ensure the beneficiaries of your estate enjoy the maximum value of your estate assets. Call us on 0151 666 9090, or use our Get in touch form to request a call back at your convenience.