One of the most pressing concerns for the elderly in the UK is the potential need to sell their home to fund residential care. This situation often arises when personal savings and pension income are insufficient to cover the cost of care. However, there are several strategies that can be employed to protect your home from being used to pay for care, allowing you to preserve your most significant asset for future generations. This blog post explores practical and legal ways to safeguard your property, ensuring you or your loved ones can receive necessary care without necessarily selling the family home.
Understanding Care Costs and Funding
Before delving into strategies to protect your home, it’s important to understand how care is funded in the UK. Care costs can vary widely depending on the type and duration of care required. Funding for residential care can come from private savings, pensions, government assistance, or a combination of these sources.
Means Testing for Care Support
The local council will conduct a means test if you apply for financial support for care. This test assesses your income and capital, including the value of your home, to determine how much you should contribute to your care costs. Generally, your home will not be included in the means test if:
- A spouse or partner still lives there.
- A relative over 60 or incapacitated lives there.
- A child under the age of 18 lives there.
If none of these apply, the value of your home may be considered in the means test after 12 weeks of permanent residential care.
Strategies to Protect Your Home
1. Investment in Living Arrangements
a. Downsizing Early
Consider downsizing to a less valuable property early on. This can release equity from your home while reducing your overall assets prior to a means test. The surplus funds can be used to enhance your savings or invest in ways that do not affect your means test eligibility.
b. Lifetime Lease Schemes
These allow you to pay a one-time fee to have the right to live in a property rent-free for the rest of your life. This reduces your property’s value as an asset and can potentially exclude it from means testing.
2. Use of Trusts
Establishing a trust can be an effective way to protect your property. By placing the home into a trust, legal ownership is transferred to the trustees.
Types of Trusts:
- Life Interest Trusts: They allow you to nominate someone (typically a spouse) to live in the house until they die, with the property then passing to another named individual, usually a child.
- Discretionary Trusts: Give trustees the power to decide how the assets are used to benefit the beneficiaries, potentially protecting assets from being considered in a means test.
3. Gifting the Property
Transferring the ownership of your home to your children or another family member can remove it from your assets. However, this strategy comes with significant risks:
- Deprivation of Assets: If the local authority believes you have deliberately reduced your assets to avoid paying care fees (such as gifting your home), they may still assess you as if you owned the home.
- Personal Risk: The new owner could face financial difficulties, divorce, or bankruptcy, which could put the home at risk.
4. Rental Income
Renting out your property can provide an income stream to contribute towards the cost of care without selling the home. This strategy requires careful management but can be a viable long-term solution.
5. Care Annuities
A care annuity is a financial product where you make a lump-sum payment in return for a regular income to cover care costs for life. This can be used in conjunction with keeping your home and using other income to pay for care.
6. Deferred Payment Agreements
A deferred payment agreement is an arrangement with the local council where they will pay for your care and reclaim the money when your home is eventually sold, typically after your death. This means you do not have to sell your home during your lifetime.
Legal and Financial Advice
It is essential to seek advice from legal and financial professionals who specialise in elder care funding. They can provide tailored advice based on your specific circumstances and help navigate the complex regulations surrounding care funding and asset protection.
Conclusion
Protecting your home from being sold to pay for care involves careful planning and a clear understanding of the legal and financial frameworks. While each strategy has its benefits and risks, the right approach depends on individual circumstances and long-term objectives. By planning ahead and consulting with experts, it is possible to safeguard your assets while ensuring that care needs are adequately met. This not only provides peace of mind but also preserves your home as a legacy for future generations.
