Can a trust protect my assets from care home fees?
Particularly for clients whose main asset is the family home, the prospect of that home having to be sold in order to pay for the cost of care in later life is a distressing one. And there are providers (particularly unregulated providers) who promote the idea of putting your house in trust specifically to avoid paying the cost of care.
Often the proposed trust is expensive, with limited information given about the tax and other practical implications of this kind of trust.
So, does it work – and is it worth it?
The bad news is that you can’t set up a trust if part of your motive is to avoid paying for your care. If you try, the local authority has the power to treat you as still owning the assets you gave away, or to insist that the trust pays for your care. There is no time limit.
If the suggestion is that you should mislead the local authority about the reasons for setting up the trust, you should be particularly wary – as doing so could constitute fraud.
What should I do instead?
While you cannot get out of paying your own care fees by setting up a trust, you can legitimately use a trust to provide for someone else who might need care in the future. The most appropriate way to do this is usually through your will.
We see this most often with couples: you might choose to include a trust in your will, so that some of your assets (typically your half of the family home) would be available to provide for your partner, but with the reassurance that those assets would not be taken into account if your partner needed care after your death.
Another example might be where you want to make provision for a parent or elderly relative, particularly one who is living with you. You would not want them to be homeless after your death; you might even want to ensure they have funds available to support with the cost of their care if they were no longer able to live independently. But you may not want them to lose their entitlement to support from the local authority with the cost of that care because of your generosity. A trust would be an ideal way of balancing those goals.
You should also consider making Lasting Powers of Attorney, enabling trusted family members or friends to make decisions about how best to pay for your care if you can’t make those decisions for yourself.
What are the risks if I do put my home in a trust?
Apart from the concerns already highlighted, some examples of the other pitfalls of using a lifetime trust in these circumstances are listed below:
- The trust will make selling your property more complicated and usually more expensive – often requiring tax returns to be filed that wouldn’t otherwise have been necessary, for instance.
- The trust will make dealing with your estate more complicated after your death – usually leading to more legal and/or accountancy fees to sort it out.
- The trust may well mean there is more inheritance tax to pay on your death: a valuable tax relief for leaving your home to your children would not be available if the property is in trust.
Depending on the value of the property, there may also be an extra inheritance tax bill to pay every 10 years the trust continues – even while you are still alive.
I have already put my house in trust. What should I do?
We would strongly recommend you take advice about the terms of the trust and all of its implications, from a qualified solicitor specialising in trusts.
It may be possible to remove assets from the trust if you no longer consider it is right for you; but that will depend on the terms of the trust, and may not be straightforward.
I am a trustee and the settlor is now in care. Should the trust pay?
This is a complex situation where specific advice tailored to your particular circumstances will be indispensable.
While we need to bear in mind the points made above, there may be cases where a trust was genuinely set up for reasons other than care fee avoidance. If that is the case, funds in trust might legitimately be disregarded when working out how much they should pay for that care.
In the absence of evidence, we should be slow to assume the person setting up the trust had an improper motive – and so should the local authority. There is guidance, which local authorities are legally required to consider, which says that they should not assume the person who set up a trust did so in order to avoid paying care home fees, if they were in good health at the time and could not have foreseen the need for care.
Conclusion
We have seen that trusts are not usually appropriate for assets you want to carry on benefiting from yourself; and in particular that they are not a silver bullet for addressing the shortcomings of our country’s care system.
Trusts are, however, a very effective way to provide for someone else; and the next instalment of this blog series will discuss some of the strengths of trusts when used appropriately.
If you would like advice about setting up a trust, or in connection with an existing trust, speak to one of our trust law solicitors today and find out how we can help. Contact us on 03456 465 465 or email enquiries@rotherabray.co.uk
Disclaimer: This blog is for information only and does not constitute legal advice. If you need legal advice please contact us on 03456 465 465 or email enquiries@rotherabray.co.uk to get tailored advice specific to your circumstances from our qualified lawyers
