This is the question most people raise when they are told they have to pay for their own long term care.
There has been a lot of publicity and controversy over this topic, which is not surprising as it's an emotive subject. The home you worked years to buy and which hosted all the major events in your family's life is reduced to being an 'asset' that is available to meet the costs of something you thought the state would pay for.
Some claim they have foolproof ways to put your home beyond the reach of the Local Authority.
This preys on the desire most parents have to make sure that there's something left to pass on to their children. So let's start there.
I always tell people "…it's your home and your money". Most of you will have worked hard for what you have and if you need it to 'buy' a decent life in retirement then I say "Spend the money!"
Indeed, you might need to sell your house to ensure you get the care you want. You should not assume that the level or quality of care the Local Authority will be able to fund now or in the future will give you a happy retirement.
So if you do own your home when will its value be used to meet the cost of care provision?
The diagram below illustrates the key points :
The boxes above the line ('Living Arrangements') show when your house will/will not be considered available to meet care fees. Generally, if you are the sole owner of your home and no-one has a reasonable expectation that you'll help 'keep a roof over their head', the value of your house will be considered available to meet your care costs.
The boxes below the line ('Planning') show the types of arrangements that you might make to avoid your home being considered available to meet care costs
You can try and disguise or dispose of the ownership of your home but if you do that to escape the costs of your care it is 'deliberate deprivation'. So if, for example, you put your house in a 'trust' to achieve that aim it is 'deliberate deprivation'. Equally, if you take out an equity release mortgage to get cash which you then give away to avoid care fees that is 'deliberate deprivation'.
The Local Authority can challenge this type of action and can either get it undone or assess you on the basis that you had not given away the asset or money realised from it.
If you make an arrangement of this sort there is a risk it will not achieve your aim and in the meantime may limit your ability to do what you want with your home.
Having said that if you don't own the whole of your house then the Local Authority should only value your interest in it at the price someone would be willing to pay for that share.
For example, imagine you bought a house with your sister. You each paid half the purchase price. You each own half of it. You then need long term care.
The Local Authority should only treat you as having an asset worth what a third party would be willing to pay for your 50% share. It is unlikely anyone would be willing to pay much for a half share in a house they can't sell or live in.
If you are in a long term relationship you can create this situation for whichever of you lives the longest. Instead of holding your home 'jointly' and leaving your interest in the house to each other in your wills, you can decide that you each own a fixed share and each leave that share in a 'Life Interest Trust' for the benefit of the person who lives the longest.
This is not 'deliberate deprivation'. The person who needs care hasn't deprived themselves of an asset. They didn't own it in the first place. The survivor only owns half their home outright and the value of that share is arguably less than half its market value.
However, there are downsides to this:
- The 'survivor' can't sell the house and/or access the capital held in the Trust without the cooperation of the person who gets it after they die.
- There may be adverse Tax implications.
- The rules might change in the future to alter the valuation basis.
This also won't work if you both need long term care at the same time.
They Can't Sell Your Home
Even if your home is assessed as being available to meet care fees the Local Authority cannot force you to sell it.
They may offer you a 'Deferred Payment Agreement'. This is in effect an interest free (for the moment anyway) loan secured against your home.
If you decide to 'apply' they insist that you grant them a 'Legal Charge' over your home. This ensures that you can't sell the house without repaying that loan.
Paying for the privilege? A 'postcode lottery'.
There has been a recent trend for Local Authorities to impose an administration charge for entering into a 'Deferred Payment Agreement'.
The charge varies from County to County. Somerset is pretty expensive. The reason for the variance is that the amount charged depends on each Authority's interpretation of a paragraph in a Local Authority circular issued in 2001.
That paragraph suggested that such things as land registry searches (currently £3.00) or registering the 'Legal Charge' (currently £40.00) could be charged for.
However Local Authorities are interpreting it as allowing them to recover all their costs associated with setting up the loan agreement. Examples of the range of charges are:
|Brighton & Hove||£100|
What if you refuse to apply for a 'Deferred Payment Agreement'
The Local Authority have two options. They can take court action to recover the amount they consider due.
Alternatively, and more likely, they can use their statutory power under Section 22 of the Health & Social Services and Social Security Adjudication Act 1983 to place a Charge against your home. This has up to now been the main method used by Local Authorities.
The Local Authority doesn't need your agreement to take a Charge against your home if they use 'Section 22'. However, that approach prevents them charging you for their legal costs.
A Charge obtained by using Section 22 does not carry interest and so is very similar to a Deferred Payment Agreement. The main difference from your point of view is with a Section 22 Charge interest runs from the date of your death, whereas under the Deferred Payment Agreement interest does not run until 56 days after your death.
The key thing is not to be rushed into signing agreements or documents and if you feel you are being put under pressure you should call us to discuss the position.
Depending on the amounts involved you may be better off not applying for a Deferred Payment Agreement at all thus avoiding the administration fee and instead let the Local Authority seek a Charge without your help.
If you are acting for someone who no longer has capacity to enter into a 'Deferred Payment Agreement' you should also be wary of signing on their behalf.
If you are worried about long term care costs you should seek advice from someone who understands the assessment and means testing systems before you do anything regarding the ownership of your house.
Next month I will move onto the methods used by the Local Authority to assess care needs.
- A Department of Health Policy Paper in 2013 estimated that 55,000 people in England enter residential care as a self-funder each year. Of these approximately 35,000 need to access the value in their homes to pay for that care. Only 4,000 of those people take out Deferred Payment Agreements.
- If your home is considered available to meet your care costs its value will be ignored for 12 weeks, but thereafter is considered available. In Somerset it takes approximately 100 days on average to get an offer once you put a house up for sale. It can then take a similar amount of time before the sale completes. This means that even if you put your house on the market the day you went into care it is unlikely it will be sold until some time after the Local Authority expect you to start paying.
- The Institute and Faculty of Actuaries has estimated that even with the proposed cap on care fees, a person with over £155,000 in assets (including their house) will pay on average £140,000 towards their care. The average house price in Somerset is £188,645.