Will poor health in later life put your home at risk?
There is an unspoken fear at the back of many mature people’s minds, particularly if they have children and grandchildren they hope to provide for.
“What if I become frail when I’m older? Will I have to go into a home? Will that rob me of my assets? Will my children’s inheritance be diverted to the council?”
This is an issue that will affect us all. The worldwide trend is that we are living longer but experiencing more vulnerability in our later years.
A recent study by the Institute of Health Metrics and Evaluation at the University of Washington has shown that, since 1980, life expectancy across the globe has increased by ten years, but that healthy life expectancy hasn’t kept pace.
Healthy life expectancy has only increased by just over six years, meaning that, worldwide, our extended lifespan comes with an additional four years of vulnerability in later life.
We see the evidence of this trend here in the UK, with increasing pressure on social care services for the elderly, dubbed a “social care crisis”.
Junior Health Minister David Mowat sparked controversy recently when he told MP’s that the government is looking to save on “soaring costs” of care for vulnerable older people. He suggested that families must, as a matter of course, expect to give as much support to their elderly parents as they do their young children.
Because many parents face the prospect of having to divert much of their children’s inheritance to the council, using the value of their home to pay for care, this is a serious estate planning concern for many families. With the annual cost of residential care averaging £40,000, the cost of a four-year stay in a care home is equivalent to the value of a modest family home in the North West.
However, with the equally soaring cost of housing putting greater pressure on the younger generation, there is growing concern among parents to provide security for their children and grandchildren.
So, how safe is your home? There isn’t a short answer to that question, but it helps to know where you stand legally.
The Current Framework - The Care Act 2014
The Care Act 2014 has set some ground rules as to your rights and obligations as a homeowner if you ever need care: -
If you have a need for care and, your local authority must carry out a needs assessment, regardless of your financial situation. The council must consider and try every option for supporting you in your own home if that is what you want. Even if you don't qualify for funded support, the council must at least give you information and advice.
Council care is means-tested, taking account of both your income and your capital. You must be given a written record of that means test.
Currently, if you have capital of more than £23,250, you must meet your own care costs in full.
However, the council must always disregard a “protected amount” of your capital, currently £14,250. So, the worst-case scenario is that you will always have £14,250 to leave to your family when you’re gone.
Your home’s market value is included in the assessment of capital.
If you have a spouse or partner, you own your house together, and it’s you that needs care, only your half of the house is included in your means test. The value of your spouse or partner’s half is disregarded. So, if you’re in care and your spouse or partner is at home, he or she won’t have to worry about the house being sold from under them, which is some comfort.
However, if, as is often the case, you go into care after your spouse or partner has died, this disregard won’t apply. Nor will it apply if both of you end up in care.
How is your half of the house valued in the means test?
Statutory guidance says the council must get a professional valuer to assess the price a “willing buyer on the open market” would pay for your half, and your half alone.
Crucially, the council can’t just take the market value of the whole house and divide that figure by half. This sounds artificial but has a major impact in practical terms.
It’s very hard, on the open market, to find a “willing buyer” who’d want to buy half a house. This means that the market value of half a house is usually far less than 50% of the market value of a whole house.
For example, if you and your spouse co-own a house that’s worth £150,000, the “market value” of your half, on its own, would be considerably less than the £75,000 you’d otherwise expect if the whole house were on the market.
In principle, if your house is vacant because you have gone permanently into care, the council can insist on the property being sold. However, the Care Act establishes a Deferred Payment Scheme, which replaces a rather messier system that existed under previous legislation.
Deferred Payment Agreements
Under a Deferred Payment Agreement, the council lends you the cost of your care, and the loan is secured on your house. Your house is sold after your death, and the proceeds of sale used to repay the loan.
You are entitled to a Deferred Payment Agreement if:
The council has decided you need to be looked after in a care home, and
Your capital, excluding the value of your house, is less than £23,250.
If you fall outside those criteria, the council can still offer you a Deferred Payment Agreement, but doesn't have to.
Deferred Payment Agreements are big business for local authorities. NHS Digital recently revealed that just under 3000 Deferred Payment Agreements, worth more than £72million, are currently held by a sample of 55 local authorities. This sample represents just a third of local authorities nationwide, so the actual figures are thought to be three times as high.
Protecting the Kids’ Inheritance.
By making intelligent estate planning choices, you can salvage some security for the next generation of your family.
An important first consideration is to start as early as possible. The sooner you put your safeguards in place, the more likely it is that they will work. Don't put it off until you’re “old”.
If you’re a couple, there’s a two-step plan you can adopt.
First, you can change the way you co-own your house by making and registering a Deed of Severance. That means you can both use your Wills to leave your share of the house to the next generation. Without this, your Wills have no effect on what happens to the house when you die. If you die first, your spouse or partner automatically becomes the sole owner.
Next, make a Traditional Will, or, if appropriate, a Family Trust Will. In your Will, make sure that your half of the house is left to the next generation, NOT to your spouse or partner. Instead, leave your spouse or partner the right to occupy your half.
That way, if you die first, and your spouse or partner later goes into care, only their half of the house will be included in their means test.
If you don't do this, and you die first, with your spouse or partner automatically becoming the sole owner of the whole house, the house’s entire value can be included in the council’s means test.
If you’re single, divorced or widowed, this option isn’t open to you. You might instead consider giving your children a “Living Inheritance”, by gifting the house to them, either outright or via a Family Trust. Avoid an outright gift wherever possible, because it can place your home at risk if something later goes wrong in your children’s lives.
Bear in mind, though, that the council, in its means test, can look for evidence of deliberate deprivation of capital. If deliberate deprivation is proven, the house can still be taken account of in the means test, despite having been gifted to your children.
The council can make a finding of deliberate deprivation if the only reason, or the main reason, for the gift, was to avoid care costs. This can be established if, at the time of making the gift, you reasonably expected you’d being going into a home in the near future.
Only think about giving a living inheritance if avoiding care isn’t the main, or only, reason for doing it, and you’re fit and well, living independently, and don't currently expect to need council care.
Inevitably, the question of care is unlikely to come up unless you’re frail and vulnerable. But being frail and vulnerable makes it very difficult for you to manage your day to day finances and speak up for yourself when important decisions about your future are under discussion.
However, you can plan forward now, while you’re fit and well, to retain control of your finances and the big decisions, whatever may happen in the future.
You can do this by making a Lasting Power of Attorney for Property and Financial Affairs and/or a Lasting Power of Attorney for Health and Welfare. Lasting Powers of Attorney enable you to empower the people closest to you, whom you trust the most, to help you with your day to day finances, and speak up for you on the big decisions about your future, if ever you can’t do this for yourself.
And when it comes to the big, personal decisions about your medical care, you can make an Advance Directive, also known as a Living Will, stating what medical care you would and wouldn’t consent to if you couldn’t speak up for yourself. This is the definitive way of making sure your comfort and dignity always come first.