Should I put my property into trust to avoid care home fees? Should I sign my home over to my children? How can I protect my hard earned assets and ensure there is something left for my children to inherit?
These are common questions that we hear from our clients every day. They reflect widespread concern over growing care home fees, which range on average from £500 a week for residential care, through to £1000 a week for nursing care.
This well-placed concern has driven the demand for so-called ‘Asset Protection Trusts’, sold to unsuspecting buyers as a means to avoid care-home fees. Those marketing these unscrupulous services are charging typically between £2,500 and £5,000 to set up the trust. But despite the fact that some of those selling the trusts are legitimate UK-registered companies and may even have legal qualifications, these trusts are, as Age UK notes, “effectively a worthless piece of paper”.
Q: What is an ‘Asset Protection Trust?’
In the UK where a person needs care. the Local Authority will carry out a means test. Those with more than a certain level of assets (including the value of their home) will have to pay for the full cost of their care. When a person’s assets fall below this level, the Local Authority will contribute towards care costs – and when assets are further depleted to the lower limit, the Local Authority will take over paying the fees. Typically at this stage a person may still be asked to contribute to their care, particularly if they have chosen a residential care facility that costs more than the Local Authority is willing to pay. Naturally this means there may be little or nothing to pass on to future generations.
Not everyone has to pay for the cost of their care – those with severe needs may be entitled to Continuing Healthcare Funding – but criteria are strict and it can be a battle to obtain an award.
The idea of an Asset Protection Trust is to take your main asset – the family home – and transfer it in a trust so that you no longer own it. The theory is that if you don’t own the property, it cannot therefore be taken into account when deciding whether you should pay for some or all of your care costs.
However, if a Local Authority discovers that you have transferred the property into trust to avoid paying care fees, this will be classed as a ‘deprivation of assets‘. In such circumstances the Local Authority has a wide range of powers – for example, they can treat you as if you still own the property (called ‘notional capital’) and bill you accordingly.
Those peddling Asset Protection Trusts often say that the transfer would not be deemed to be a deprivation of assets because at the time of making the transfer, there was no immediate need for care and no foreseeable need in the future. Whilst the motive for making the transfer certainly is the key issue, consider that there is no other reasonable explanation for making the transfer. This is particularly true if you continue to live in the property after transferring it to the trust. Some companies cite ‘avoiding probate fees’ as a possible motivation but in most cases, you will not avoid the requirement for a Grant of Probate on your death, as this is needed in most cases. In the absence of a reasonable explanation for the transfer, it is likely the Local Authority will conclude that a deliberate deprivation of assets to avoid care fees has taken place. This has been confirmed by Local Authorities who are taking action against people who have used these type of trusts.
Q: What do others say about Asset Protection Trusts?
Age UK describes them as
“effectively a worthless piece of paper”.
Howard Turton the Regional Enforcement manager of the North East Trading Standards Association has warned:
“The potential limitations of such products are also not always conveyed to the homeowner. Local authorities have a legal right to overturn any gifts into such trusts where they can prove that there has been a ‘deliberate deprivation of assets’. For this reason, customers who take out an Asset Protection Trust or similar could find themselves challenged by the local authority at a later date.”
“Many qualified practitioners consider that such devices do not deliver what they promise, in that local authorities are entitled to disregard the trust when assessing the individual’s assets, under the deliberate deprivation of assets rules”.
The Solicitors Regulation Authority have stated:
“We are aware of the issue of mis-selling of asset protection trusts. If necessary, we will work with other regulators.”
In May 2015 eight people were jailed at Nottingham Crown Court for mis-selling so-called asset protection trusts to elderly clients.
Meanwhile, Local Authorities are actively pursuing those who have deprived themselves of assets to avoid care.
Q: Are companies still selling Asset Protection Trusts?
Yes. Despite the extensive news coverage and clear guidance from Local Authorities that these trusts will be ignored when calculating a person’s assets, companies are still advertising them aggressively.
Q: What are the dangers of an Asset Protection Trust?
There are multiple risks involved with this type of scheme. These include:
- The value of the assets you transferred may be still taken into account when performing a means test (see “Notional capital” in our Deprivation of Assets guide).
- Your remaining assets may be used up entirely to pay for care (because you are deemed to still own the asset, even though you gave it away).
- Once your remaining assets are used up, the Local Authority can take enforcement action in respect of ongoing care fees. This might include action in the Magistrates Court, imposing a charge on the property (even though it is no longer in your name) or even reversing the transfer. This could be protracted, expensive and stressful.
- The Local Authority may choose to provide only a basic level of care, leaving you to fund the rest.
We suggest reading our guide to Deprivation of Assets for more information.
Q: Should I give my home away to my child instead?
Gifting your home to your child to avoid care costs is a deprivation of assets, and creates many other risks.
Some people sign over their house to their children and continue living in it, in the hope of avoiding care costs. There are multiple risks involved in this – see our articles ‘Gifts with a reservation of benefit‘ and ‘Should I give my home away to my child?‘ for more details.
Q: What can I do if I’ve transferred my house to an Asset Protection Trust?
The Office of Fair Trading said victims could get redress under the Consumer Protection from Unfair Trading Regulations 2008, which prohibit unfair commercial practices. The relevant sections 3 – 5 which state that an unfair commercial practice is one that is misleading. Such a practice will be misleading if its overall presentation in any way deceives or is likely to deceive the average consumer even if the information is factually correct and it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.
Q: Can I legitimately protect my home from care fees?
You can take legitimate steps to protect your share of the family wealth from care home fees. Briefly, these require that you sever your joint tenancy so that you and your spouse/civil partner own your home as tenants in common. You then need to rewrite your Will so that your partner has a life interest in your share of the property after your death. Should your partner need care, any care fees will be taken from their half of the property (usually by way of a charge, rather than forcing a sale of the home) – but your half of the home is safe and can be passed on to future generations. After all, why should you pay for care you didn’t receive?