How to avoid the Dementia Tax: Paul King Explains

Avoid the dementia tax
Many people are still unaware that if they need care in later life, their assets will be means-tested by the local authority to help pay for these services. This goes back to the Community Care Act 1990, which came into force in 1993.

If someone requires social care in later life, the local authority will look to use the assets of a person until they get down to a lower limit of £14,250, when the local authority will take over the fees.

Paul King knows this all too well, after experiencing this personally.

“My grandmother sadly passed away at the age of 92. My grandfather had died many years earlier and left everything to her. When she needed care in the last six years of her life, because my grandfather had left everything to her, the house and all the estate were counted in the local authority’s means test. Just as she died, she had gone down to that lower limit of £14,250 – and that’s all that her children inherited.”

Our clients tell us, ‘We’ve worked hard all our lives, why should the local authority get it all?’

There are many myths about the steps people can take to protect their assets from being used like this. The main one is that a parent should simply sign their house over to the children now, so it won’t be taken into consideration for means testing. That’s just not true.

Local authorities will actually look to see if you’ve ‘deliberately deprived’ yourself of an asset by giving property away, going back over any period in time.

Sometimes people think if the gift is made seven years prior then the house is safe. This is not so as the seven-year rule only applies to Inheritance Tax and not local authority care. The solution is for couples to simply not leave everything to each other in the first place.

Paul continues to explain:

“What my grandfather could have done is leave his half of the house in trust to his children, stating that they couldn’t have it while his wife, my grandmother, was still alive. We call these Property Trust Wills.

If my grandfather had left his half of the house in trust to the children then when my grandmother subsequently received care in her later life she would have only been means tested on her own half of the house, but my grandfather’s half would have been safe.

Why should he have to contribute his half when he didn’t receive any care?

The important factor is that couples need to act in advance. Once one party dies or loses mental capacity, through a stroke for example, they are no longer in a position to do this legitimate and straightforward type of planning.

It is therefore important for couples to act now even if they may not foresee care fees being an issue.”

Paul goes on to explain a further important point. Most clients he sees are surprised to learn that remarriage usually cancels a will and makes the new spouse next in line to inherit, ahead of their own children!

Protecting your half of the house in this way, he suggests, ensures that your children ultimately inherit when the survivor dies.

“Had my grandmother remarried after the death of my grandfather the whole estate could have passed sideways out of the family,” says Paul.

It’s another important reason for home-owning couples to upgrade to a Property Trust Will.

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