Care home fees and deprivation of assets

grey_lady

I'm hoping that this thread is in the right section and someone will be able to help.

I'm worried that an elderly relative may have done something that could be viewed as depriving themselves of assets and I'm hoping to get some views on this.

About 13 years ago a great uncle/aunt signed their house over to their son - I believe that this was done to avoid IT, (both were in good health at the time) a deed was drawn up by solicitors etc. Four years ago my aunt died, as their finances were joint nothing was passed on in the way of an inheritance. A few months before she died they decided to move to a bungalow close to their son as the stairs were getting to much, and the house was sold, bungalow bought and the son paid some capital gains tax on the house as it wasn't his primary residence.

Now it very much looks like my uncle may need to go into a care home, I'm not sure if he will quality or not for medical care - it is starting to look like he has dementia and on some days has problems and is unable to do simple things like feeding himself or holding a cup and he is also on oxygen all the time - but i realise that medical care is quite a rare thing and not many people qualify.

So I'm worried that when the old house was signed over 13 years ago it will be seen as a deprivation of assets and a claim will be put against the new bungalow - can anyone tell me if that's likely to be the case???

I'm also worried that any cash gifts he has given recently for birthday's and christmas's (he's quite generous with children/grandchildren) could also be seen as deprivation of assets? I'm also certain he bought the son a new car a couple of years ago - the son pretty much acts as unpaid carer could this also be dodgy?

I really hope all this isnt viewed as fraud or anything because I'm sure that would never have been the intention.

dunstonh

About 13 years ago a great uncle/aunt signed their house over to their son - I believe that this was done to avoid IT, (both were in good health at the time) a deed was drawn up by solicitors etc.

Signing your property over to a sibling doesnt avoid IHT as you are still benefitting from the property.

So I'm worried that when the old house was signed over 13 years ago it will be seen as a deprivation of assets and a claim will be put against the new bungalow - can anyone tell me if that's likely to be the case???

It does stick out like a sore thumb to the person doing the means test. If there is a justifiable reason for doing it for other reasons (and based on what you say it may not have been done correctly - maybe but cant tell) then its fine. However, you would expect them to take a close look at it. I suspect rent will be the key issue. If no rent was paid then it wont avoid IHT, it creates a CGT bill later (so rather than avoid tax it doubles up in tax) and as it cant be said it was done for tax efficiency, it will look an awful lot like deprivation of assets.

I'm also worried that any cash gifts he has given recently for birthday's and christmas's (he's quite generous with children/grandchildren) could also be seen as deprivation of assets?

Small gifts, typically within the IHT gift allowances shouldnt cause an issue. Larger, more recent gifts could.

ericonabike

I assume you are talking about deprivation of assets from the point of view of DWP rather than HMRC? If so then I doubt your relative or his representatives would have much to worry about. At present he is living in another's house and has no property of his own. The fact that he did own property 13 years ago is unlikely to be raised - if it is, then the DWP would have to prove that his actions at the time were designed to allow him to claim benefits to which he would otherwise not have been entitled. As the transfer took place 13 years ago this would be difficult, to say the least..

le_loup

Not sure I agree with ericonabike.
As dunstonh says, what were the reasons for the disposal? It wasn't for IHT purposes, so what was it for?
We can't be sure as there are only guidelines for considering Deprivation of Assets, not cut and dried conditions.
The deprivation doesn't even have to be deliberate.
Get professional advice.

jamesd

Inheritance tax first. Unless they were paying market rent to the son the signing over of the house will be of limited value for inheritance tax. This is because giving the house and still living it is something called a "gift with reservations". I'm not sure how selling the house and buying the bungalow would affect things. Chances are that the nil rate band of both aunt and uncle could be used, so that should help to reduce or eliminate any possible inheritance tax. However, the rules were a bit different when this signing over was done and with a solicitor involved there's a fair chance that it's all been properly taken care of. No harm to check of course and now would be a very good time to do that.

For the deprivation of assets test things are probably better. To be considered a deprivation of assets there must have been some individual/personal foreseeable need for care. Just knowing that there's a possibility or care being needed based on demographics isn't enough, it must be a personal, individual diagnosis before the gift. It seems very likely that 13 years ago they didn't know that they would be certain to need care, particularly given their good health, so they should escape the deprivation of assets test. Some councils might take this to court but this is how it should work: no knowledge at the time, no deprivation.

It is now too late to give anything else away to avoid paying for care home fees. The deprivation of assets test would catch those things.

Now is a good time to put together records of the gifts he gave to children and such. These are all "potentially exempt transfers" for inheritance tax and provided they were made out of normal income without harming his lifestyle there should be no inheritance tax issue. Similar is likely to apply to the gifts with reservation test for any gifts given before there was a clear personal need for care.

The car would need to be considered for inheritance tax and possibly for deprivation of assets, depends on whether there was a clear need for care at the time it was done.

There's no possibility at all of fraud provided everyone is honest about what was done. People are completely free to do legal things like these to try to reduce their liabilities. Just accurately report everything that happened and it looks like a fairly favourable picture.

grey_lady

Thank-you all, I believe that no formal rent has been paid, so it does seem like a 'gift with reservation' - which confused me because what is the point of that? but as a solicitor was involved I hope it was all done correctly.

The cash gifts were all within - I think the allowable limits for IT purposes. The car was probably just as much for his use in that in recent years his son would drive him to medical appointments, the bank, social clubs fetch his shopping pretty much something every day.

It's the deprivation of assets for care home fees that worries me the most, because I thought that after so many years had passed it wouldnt be seen as that but apparantly there are no hard and fast rules about the timing and it's up to the local authority? I have no idea of the applicable rules or laws etc here but ageconcern have something on their website about there being no time limit and the authorities can use the insolvency act to overturn transactions??

Finally I know he's already bought some Christmas gifts for family members and will be planning to give children/grandchildren cash if this all amounts to several hundreds of pounds and the deprivation of assets test happens within the next 6 months will they have to give the money back? surely not the presents?

dunstonh

Thank-you all, I believe that no formal rent has been paid, so it does seem like a 'gift with reservation' - which confused me because what is the point of that? but as a solicitor was involved I hope it was all done correctly.

A solicitor is not a financial adviser or an accountant. They may have only done the legal work in transferring ownership.

With no rent being paid, the property is probably still in the estate as it is a gift with reservation.

The problem is also that the son will also suffer a capital gains tax bill on disposing of the property and the parents estate will be subject to IHT (subject to allowances).

It's the deprivation of assets for care home fees that worries me the most, because I thought that after so many years had passed it wouldnt be seen as that but apparantly there are no hard and fast rules about the timing and it's up to the local authority?

There is no timescale on when a transfer of asset/gift becomes exempt. A general rule of thumb is that there has to be a valid reason for doing it at the time and must be done before care is known to be required or expected that it will be required in future. The further back in time you go, the easier it is to say that you didnt know you would need long term care. However, in this case, the signing over of the property clearly wasnt done for tax purposes (as it increased tax). So, what was it done for? The only other logical thing is to try avoid the means test. So, potentially, it falls down there. We say potentially, as it is up to the person doing the means test as to how thoroughly they look at a case. Also, sometime they investigate later on and find out about undisclosed assets (particularly on death) and make a claim against the estate then.

I would find out what the son and parents did with the house first. On limited information you have posted it sounds like one of those man-down-the-pub-told-me transfers of property ownership which do more damage than good. However, with a bit more info you may find out that there is more to it and that the son was not made the owner but a trust was set up.

grey_lady

'The problem is also that the son will also suffer a capital gains tax bill on disposing of the property'

Well the original property was disposed of and the son paid CGT - but on taking advice recovered the tax paid as there had been a trust put in place.

I'm not sure if the new property was purchased using a trust arrangement though - anyway fingers crossed it all works out ok and thanks for all the responses and advice.

jamesd

grey_lady wrote: »

It's the deprivation of assets for care home fees that worries me the most, because I thought that after so many years had passed it wouldnt be seen as that but apparantly there are no hard and fast rules about the timing

There aren't hard and fast rules about timing, but instead about knowledge. No knowledge of impending needs means no deprivation obligation.

grey_lady wrote: »

it's up to the local authority?

Councils may impose time limits for how far back their investigations go to save them work. Thirteen years is a long time and few people could have had personal knowledge of need that far back.

It appears that if they have medical records available, as they most surely do, they have a watertight case against any deprivation of assets obligation in respect of the house. That still might not stop some councils from trying it but the precedents seem clear enough.

grey_lady wrote: »

I have no idea of the applicable rules or laws etc here but ageconcern have something on their website about there being no time limit and the authorities can use the insolvency act to overturn transactions??

Not without showing that there was specific personal prior knowledge of need at the time the transaction happened. And there wasn't in this case, so they wouldn't succeed.

grey_lady wrote: »

Finally I know he's already bought some Christmas gifts for family members and will be planning to give children/grandchildren cash if this all amounts to several hundreds of pounds and the deprivation of assets test happens within the next 6 months will they have to give the money back? surely not the presents?

I can't see any council trying that. It's an invitation to an adverse headline in the local paper. He has a need for assets but that doesn't stop normal life.

You mention a trust involving the property. That means that it's really tough to apply general rules without knowing the specifics of the trust. Time to stop getting general comments here and get personal, specific advice from a professional. Trusts are used for both inheritance tax and means test planning. Given the involvement of a solicitor I'm fairly optimistic but still needs to be checked.

sleepless_saver

grey_lady wrote: »

Finally I know he's already bought some Christmas gifts for family members and will be planning to give children/grandchildren cash if this all amounts to several hundreds of pounds and the deprivation of assets test happens within the next 6 months will they have to give the money back? surely not the presents?

I don't expect they would have to give back gifts already received, but surely it would be inappropriate to continue this way in the future? Personally I would be embarrassed to accept more than a token gift from someone who is so mentally unwell that they are expected to need residential care soon. The person may not fully understand the implications of giving it away, and will probably need their money for themselves.

Errata

How much do they charge for this service, and do they still charge if they fail?