DailY Chuckle … Money Section … quite often . the only section worth reading … albeit occasionly ?
We bought a flat for our son but if one of us needed care would we have to evict him and sell it ?
We spent an inheritance and large chunk of savings on outright purchasing a tiny flat for one son who struggled to get a job or a home of his own and he has lived there now eight years.
We own our own home in another part of the country and the son pays a below market rent to us and it forms a good bit of our income.
My husband is retired on private and state pension and I am 62 with no pension yet. If one of us (my husband or I) needed care, would we have to evict the son and sell the flat to pay for it ?
Ben Tyer, head of private client at lawyersforlaterlife.org, a division of GLP Solicitors, replies: I presume your objective is to preserve the flat so your son can remain there and you can continue to receive the rental income.
As to whether you will ever be put in the position of having to sell the flat one must understand how care fees are paid and by whom.
Health care is free at the point of use unlike social care which is means-tested – in other words, the local authority will only pay for social care for those whose capital and income are below a prescribed threshold.
Sometimes a stay in a care home can be due to a ‘primary’ health need in which case the NHS will, generally speaking, fund the entire cost of the stay under the regime known as continuing healthcare saving you the money.
However, establishing a care home stay is due to a health need as opposed to a social one is a high hurdle to overcome, so without any details of illnesses I will assume any care home stay will be a social care issue and therefore based on your means.
In the event you or your husband need care your local authority will undertake a financial assessment to determine whether that person has the capital and savings to pay for all or part of their stay or if it has to pay.
The assessment is done on an individual basis so if your husband needs care for example it is irrelevant what capital or savings you have in your sole name.
The thresholds in England and Wales for deciding if the person in a care home requires local authority assistance is as follows: if the person has capital (other than their own home) and savings of £23,250 or more, they will be expected to pay all of the care home fees – known as self-funding - until their savings drop below this amount.
Once they fall below this figure, the value of the person’s share in the family home will be included unless one of the ‘disregards’ apply such as a spouse continuing to occupy it as their main home.
If a disregard applies then, because the individual has capital or savings of less than £23,250 but more than £14,250, the local authority will contribute towards the care home fees but you will still be expected to pay some savings and use any income.
If you have capital and savings of less than £14,250, you won’t have to use this money because the local authority will pay your care home fees.
You will still have to contribute most of your weekly income (state pension, occupational pension, attendance allowance and so on) but you will be left with at least the personal expenses allowance (£27.75 per week, as of 8 April 2019).
n your circumstances, should one of you need care the local authority will undertake this exercise and whilst your family home will not be considered because a spouse continues to live there, the person’s share of the flat will be taken into account as to whether you should self-fund the care home stay.
This does not automatically mean it has to be sold because whilst you have sufficient savings and income to cover the cost of the care fees this should not pose a problem.
Having spent inheritance and a lot of savings on the flat, I assume your savings are limited but for your husband he can call on his private and state pension as well as supplementing this with attendance allowance.
Depending on the figures this could mean little capital is needed. Your situation is slightly different because you have no income at the moment so you would have to use your savings.
If your income does not cover the total care home fees and your savings have been exhausted then it is possible for the spouse to ‘top up’ the shortfall.
If this is unaffordable then an alternative could be to release the person’s equity in the family home – either by selling it or taking financial advice about equity release.
If this is not an option then value will have to be released from the flat.
Your son, depending on his circumstances, could purchase it from you which provides a twofold advantage: allowing him to remain in the property and releasing money to fund the care home stay.
The last resort will be having to sell the flat.
Could this predicament have been avoided ?
What is the downside of signing your house over to your children to avoid care fees?
If instead of buying the flat eight years ago you had gifted it to your son then it may not have been included in the financial assessment and therefore would not have to be sold.
This is not due to any ‘seven year rule’ which is a myth – people often confuse this issue with the inheritance tax rules.
It is because of the local authority’s deliberate deprivation rules which are where a person has intentionally deprived or decreased their overall assets in order to reduce the amount they are charged towards their care.
Previous research I conducted revealed some local authorities had recovered as much as £100,000 from individuals who had been deemed to have gifted cash or assets to reduce or avoid care home fees.
There is no time limit on them doing this.
That said, if at the time of transferring the flat to your son eight years ago you were fit and healthy and could not have foreseen the need for care and support it would be unreasonable for the local authority to decide that you had disposed of an asset in order to reduce the level of charge so it would not be included in any assessment.
The disadvantage of gifting the flat would be that you would not have been entitled to any rental income.
However, it may have been possible to gift the property into a trust which would have put it outside your estate for care fee purposes but also have allowed you to retain income.
Legal advice should be sought about the suitability and tax repercussions before establishing a trust.
What about the future ? Is gifting the flat now an option ?
Gifting the flat now is still an option but be mindful of the deprivation of assets rules and the loss of rental income.
At the very least it is sensible to review your wills which would not avoid the situation with the flat but could at least limit the impact.
Married couples tend to have ‘mirror wills’ whereby everything is inherited by each other on the first death then to their children.
On the first person’s death the spouse will be the sole owner of the family home and the flat which would be exposed to care home fees.
Alternatively, wills could be made so that the deceased’s assets are inherited by your son, and other children if you have them, rather than your spouse either outright or in a trust.
The will could be written so as to pass the deceased spouse’s share of the flat to the son who is living there or into a trust allowing him to live there for the rest of the surviving spouse’s life with it being split between other children if that is desirable.
Consequently, the survivor will only have 50 per cent of the family home and flat exposed to care home fees.
Legal advice should be sought before such action is taken and consideration of the level of care required and therefore funds needed.