This article featured in our June 2021 newsletter.
Many people are worried, as they grow older, about what will happen if they need to go into long-term care. We need to be very careful not to get caught up in the hype about going into care as you grow older. Statistically speaking, only 4% of those who are over 65 years are in residential care. That means 96% are not! Of those who are over 85 years of age, around 15% of those are in residential care. Again, that means a very large percentage (85%) of those over 85 years of age are not in social care. Taken against the average lifespan in Scotland, if you’re reached 85 years of age, you’ve already beaten the average lifespan for both men and women!
All of that being said, there is still a concern that if you have to have residential care that your assets will be depleted to pay for it. We’re frequently asked what can be done to prevent assets being used to pay for residential care. In this article, we outline some options for your consideration.
How your contribution will be assessed
Before doing that, we should consider the assessment of your contribution. You’ll have to declare any gifts you’ve made within the 6 months before this assessment takes place. You also have to disclose if you’ve disposed of your house before you entered into care. It is important to be aware that the information relating to the disposal of your house applies even if you sold or transferred the title to your house to a relative many years before the assessment takes place.
If you have capital over a certain level (including the value of your house), you’ll be assessed as being able to meet the full cost of your care. However, your home will not be classed as capital if certain relatives still live there.
What are some of my options?
The focus clients have when discussing this subject invariably ends up being on the house and what can be done to avoid it being sold to pay for residential care. Here are some things you might think about if you are worried about this.
- You could consider gifting your house to your children. There are inherent dangers in doing that because once you transfer title to them, they can sell the house from under you. Alternatively, if they’re declared bankrupt the house will have to be sold to meet their debts. If they were to divorce from their spouse or dissolve their civil partnership, the house may have to be sold as part of the settlement with the former spouse or partner. In either case, the house would be lost and you would lose the right to live in it. To prevent this happening, you could reserve a liferent in the house. This gives you the right to live in the house until your death. However, if you are assessed for residential care, the existence of a liferent in the title might indicate that the transfer of the property to your children was not a genuine “gift”.
- As an alternative to transferring the house to your children, you might consider transferring it into a Discretionary Trust. By doing that, you will no longer own the house. It would also preserve your right to continue to live in the house. In addition, the trust would not become bankrupt or get divorced! However, if you do decide to transfer your house into a Trust, you must be very clear that the aim isn’t simply to avoid the cost of residential care, especially if it happens within 6 months of your going into residential care as the local authority could challenge the transfer of the property into the Trust.
- You may decide, as you get older, to realise some of the capital locked up in your house. You might consider a lifetime mortgage or other equity release vehicle which would allow you to “cash in” on your house whilst still living in it. There are various different types of lifetime mortgages available, some of which allow you to “roll up” the interest so you don’t have to make any payments. Because this is a commercial transaction, should you require residential care, it is unlikely that the local authority would challenge the arrangement although the value of your house after deduction of the outstanding balance to the lender would still be taken into account.
- Another option you might care to consider is to take out insurance. If you did this and required residential care, the insurance policy would pay out a regular income which could be used to offset the cost of your care. If you did have sufficient income from this source, there would be no need for the local authority to carry out a means assessment. The premiums for this type of insurance depend on your age and state of health when you take the insurance out.
Get in touch for more information
There is no “one size fits all” solution to this problem and when we are asked for advice in this area, we will ask for as much information as possible to be made available. We should also say that there may well be issues of Inheritance Tax and Capital Gains Tax that need to be addressed.
Remember the percentages. In real terms, very few of the elderly will actually require residential care. However, if you are worried about this and would like to discuss how you might plan for the future – whether it’s for yourself or a relative – please get in touch.