How you can protect your assets from care home fees

by | May 11, 2023

Any of us might need care support, particularly as we get older. If you need to go and live in a care home, your local authority may pay some of the costs. However, the value of your family home can be taken into account as part of a means test to see how much you’ll need to pay yourself. This might not be the right option for you for any number of reasons. The good news is that there are ways that you can protect your home from care home fees. Here’s how it works.

Can I transfer my home to a relative?

You might think that the easiest way to avoid having your home used for care home fees is to transfer it to someone who’ll eventually inherit it anyway and then carry on living there. However, this isn’t the best idea as it means you give up control. If you transfer it to one of your children, then they get divorced or go bankrupt, you could lose your home. You’ll also need to pay market-rate rent for the transfer to be valid. HMRC and local authorities are always on the lookout for people who intentionally deprive them of assets to avoid care costs. If you’ve paid off your mortgage and own your home outright, you may not want to start paying rent again. It could also end up costing you more.

The good news is that two legal ways exist to protect your home.

Protecting your home in your will

The simplest way to protect your home from care home fees is to put it in your will. If your home is co-owned, you’ll need to do this while you and your spouse or partner are both still alive. Most family homes are owned jointly, meaning both of you own all the property. However, if you convert to tenants in common, this gives each of you a defined share. When the first partner dies, their share goes into a trust. You can stay living there, but you can also sell and move elsewhere if you want to.

You may still need to pay some care home fees depending on the value of your property, but the local authority can only take your share into account, not the share that’s in the trust. If you down size in the future any equity left can be loaned out to you or provide you with an income.  Any income may have to be used for your care costs. This trust also works well if you have a blended family, as you can leave your share separately to your own children, you are then safe in the knowledge their inheritance is secured for them. It’s also the most cost-effective option.

Using a lifetime trust

A lifetime trust effectively transfers the full value of your house into a trust. It’s not the right option for everyone, and you can’t use it solely to avoid care fees. You need to have other reasons to create the trust. For example, you could want to prevent estranged relatives from making a claim. It can also work well for business owners who wish to protect their homes from bankruptcy. One of the advantages of this type of trust is that it isn’t subject to probate, which will give your beneficiaries quick access to your home when you’re gone. If your house is your only asset it may mean your executors don’t need to apply for probate.  This will depend on what other assets your hold.

The downside is that this method is much more costly to set up, with fees typically running into thousands of pounds. There may be tax consequences as the taxation rates are higher for discretionary trusts than on personal assets. It’s a good idea to use professional trustees to ensure everything’s done properly, which also comes at a cost.

Do you want to protect your assets from care home fees? We can help. Get in touch using the form below or call us on 0116 380 0752.

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