Everyone hopes to grow old and some of us (or someone we know) will need residential care and if that happens, your finances will be assessed to establish if you are able to pay your own cost of care.
”There are no simple and straightforward answers. Everyone’s circumstances are different. You also have to consider issues relating to Inheritance Tax and Capital Gains Tax and, when planning for long-term care, you should take steps to address these.
The cost of care can be substantial and there are certain rules that come into play. For instance, if you’ve made any gifts within the six months before your assessment, you need to declare these – and if you’ve disposed of your house for no or under value, the local authority can assess its true value when calculating your assets. You should also be aware that even if you’ve transferred ownership of your house to a family member sometime before that six-month period, if the transfer was for no or under value, the local authority are still likely to assess that this is an asset they can include in their evaluation.
If the value of your assets (this will include your property as well as any monetary assets such as cash in the bank, stocks and shares, premium bonds etc.) exceed certain levels, you will be assessed as being liable for either the full cost of your care or at the very least a contribution towards it. The current levels that have applied since April 2018 are a lower level of £17,000 and an upper level of £27,250. That means if your assets are below the lower level your care will be paid for by the state. If your assets are between the lower and upper levels, you’ll have to make a contribution towards your care costs and if your assets exceed the upper level, you’ll be liable for all the costs.
There is a very useful website that focuses on this whole area and to read more about this, you should visit Care Information Scotland. You can do that by clicking here. If you are worried your home might have to be sold to pay the cost of your care, there are some things that you might consider doing.
- One option that many people consider is transferring ownership of their home to their children or other family member. If you take this course of action, you must be aware that you no longer own the house, even if you still live in it. That means that those who whom you’ve transferred it can demand that the house be sold and there’s nothing you can do about it. You also need to be aware that if they’ve built up any great level of debt, they may be forced to sell the house if they become bankrupt or if they are divorced, they also may be forced to sell the house to meet the judgement their spouse or partner has been granted. If you do decide on this course of action you should consider including a liferent in your own favour. However, this certainly indicates that the transfer of the house to children wasn’t an outright gift.
- Alternatively, you may consider transferring the house into a Discretionary Trust. If you did that, you would no longer own the house and it would be beyond the reach of a local authority. Your right to occupy the house would be protected because the Trust will not become bankrupt or get divorced – but you also need to be aware that as the transfer into the Trust wasn’t “for value” then the local authority can examine that transfer and still assess the value of your property as part of your overall assets.
- Another option is to unlock some cash from your property by taking out a lifetime mortgage. This would release the equity locked up in your home. You might want to seriously think about this if your wealth is tied up mainly in your home. A lifetime mortgage allows you to live in your home whilst not having to make any monthly payments because the loan and interest are rolled up until the house is eventually sold. This is a commercial transaction and it is unlikely that a lifetime mortgage would be attacked by a local authority. You must always remember that any unspent money will be considered in any assessment that’s carried out.
- An alternative option that’s worth while considering is insurance. If you take out a policy and were then taken into care, the policy would pay a regular income to offset your care costs. If you had sufficient income from this insurance, it is possible that no assessment of your means will be needed. The premiums for this kind of insurance are, of course, dependent upon your age and state of health at the time you take the insurance out.
As you’ll appreciate from the above, there are no simple and straight forward answers- everyone’s circumstances are different. You also have to consider issues relating to Inheritance Tax and Capital Gains Tax and, when planning for long-term care, you should take steps to address these. So, if you do want to plan for the future – whether for yourself or a relative – or even just discuss the options in more detail, please get in touch with us.