Care Home Fees Planning: Wills

In Paying for Care Home Fees – The Basic Rules, I mentioned that the home of a patient is disregarded for means-testing purposes if it is occupied by a Spouse/Civil Partner (or other qualifying family member), but what happens if the qualifying individual is no longer living there – they die, for example? How might you use a Will to help plan for future care home fees?

The majority of married couples (and Civil Partners) own their home as Joint Beneficial Tenants, which means that they own an undivided share of the property and that, therefore, on the first death, it passes by survivorship. It by-passes the Will of the first to die. In any event, most married couples, who have made a Will, leave everything to each other in the first place. If there is no Will, that would also be the outcome in most straightforward cases under the Laws of Intestate Succession.

So, for example, if Granny is in care and Grandpa is living at home, but then he dies, all the couple’s wealth will be in the hands of Granny. If they were under the capital threshold before, they are almost bound to be over it and having to pay for their own care now!

Can this be avoided?

One fairly simple route, which has no impact until the first death and, then, only limited impact on the survivor, involves three stages, as follows:

• Severing the joint tenancy on their home. By dividing the ownership of their home into two equal shares, known as Tenants in Common, that home no longer passes by survivorship, but via the Will.
• Review joint savings and investments and consider holding the majority (it pays to keep one joint account) in the sole name of each Spouse.
• Re-write the Will to create a Trust for the survivor (and the other, future beneficiaries) rather than an absolute gift. In this way, a one-half share of the property and any other assets owned by the first to die fall into this Trust.

What is the outcome?

In the scenario envisaged above, upon Grandpa’s death, his assets, including half the house, fall into the Trust. Granny still owns her half of the property and her own savings and investments and, consequently, will almost certainly be a self-funder, even if she wasn’t previously. However, whilst Granny has access to Grandpa’s estate, because she is a Trust beneficiary, those assets are not in her name and available to pay for her care.

The outcome, consequently, is that half of the couple’s assets has been saved for the subsequent generations.

Is this likely to be treated as deliberate deprivation?

Not in my opinion. The Care Act 2014 and the allied Statutory Guidance makes it clear that a Spouse is not responsible for paying for the care of the other Spouse and there is no reason why that exemption shouldn’t continue after the first death. Additionally, the Spouse in care hasn’t deprived themselves of their assets and Grandpa is at liberty to dispose of his assets as he sees fit.

What is the means-testing value of property?

The use of a Trusts means that the surviving Spouse never owns that half share of the property or the other assets in Trust, but can live in the property and have access to those other assets. Consequently, in the event of care being needed in the future, it is only the assets in the name of the survivor that are taken into account in any means-testing.

Prior to the implementation of the Care Act 2014, this form of planning went further than that, as a clause in the CRAG (Charges for Residential Accommodation Guide) dealt with joint property in the ownership of different family members, as follows:

“Where an interest in a property is beneficially shared between relatives, the value of the resident’s interest will be heavily influenced by the possibility of a market amongst his fellow beneficiaries. If no other relative is willing to buy the resident’s interest, it is highly unlikely that any “outsider” would be willing to buy into the property unless the financial advantages far outweighed the risks and limitations involved. The value of the interest, even to a willing buyer, could in such circumstances effectively be nil. If the local authority is unsure about the resident’s share, or their valuation is disputed by the resident, again a professional valuation should be obtained”.

Consequently, so long as the property was not sold, severing the joint tenancy and creating a Trust in the Wills could well lift the entire value of the property out of the net of means-testing. However, with the advent of the Care Act 2014, the CRAG has been withdrawn to be replaced with Statutory Guidance on the practical application of the Act and this isn’t so forthcoming. I’m keeping my copy of the CRAG as evidence of how the Local Authority should exercise their discretion in the future!

What’s next?

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About Clive Barwell

Clive Barwell is one of the most experienced and qualified financial planners working in the later life market today, he specialises in advice and guidance for the over 55s. To ask Clive a question, please email him at info@clivebarwell.co.uk. Alternatively, you can follow Clive on Twitter, connect with Clive on LinkedIn or see Clive's profile on Google+.