Can I spend my savings now even though I might have to pay care home fees in the future?
Trying to look ahead, plan and budget for older age can be stressful enough without worrying about the complex rules which now govern the system of paying for any care you may need in the future.
A growing number of people are becoming increasingly anxious about what they can and cannot do when it comes to their savings, assets and home with a lot of confusion about exactly what capital and income levels councils look at when assessing someone's liability for care costs.
For most, the biggest area of concern is whether shelling out on something today could be viewed as a way of trying to wriggle out of care costs further down the line.
This is because if a council believes you have intentionally reduced your assets so they won't be included in the financial assessment for any care home fees, it may still calculate your contribution as if you still had those assets.
It's all a bit of a minefield and let's face it, particularly difficult to get your head around when you don't even know whether you are going to need care in the future or not.
The good news is that there is a common sense way through the chaos - which we will attempt to outline in this article - and options for legitimate estate planning with specialist legal advice.
How does the current system work?
If you need residential care, your local authority will carry out a means test to see how much it expects you to contribute towards the bill.
This test takes into account your income, savings, assets and property. If the total is higher than £23,250, you will have to pay towards your care costs until your capital falls below that figure.
Even if you have less than £23,250, you will have to contribute to part of your care costs until your capital dips to £14,250. After this point, you pay nothing.
So, am I allowed to spend my savings?
The short answer is yes. You're entitled to use your savings as you wish and when you're fit and well and don't know what will happen in the future, spending money on a lavish holiday or expensive new car is entirely up to you.
There is a proviso though. It's only OK as long as you don't have any health issues and are not in receipt of any care assistance at the time.
This is because if a council thinks you had a reasonable expectation of needing care when you made the purchases, or that avoiding paying for care was a significant reason for them, it may deem you intentionally reduced your assets in a bid to minimise your contribution.
What counts as deprivation of assets?
There are a number of actions that could be seen as a deliberate way of 'off-loading' assets, including:
- Giving away a lump sum of money;
- Suddenly spending a lot of money in an unusual and extravagant way;
- Gambling savings away;
- Using savings to buy things like jewellery or cars that would be excluded from a local authority means test;
- Gifting property by transferring it to someone else;
- Putting money into a trust or tying it up in another way;
- Selling an asset for less than its real value.
Gifting assets in this way can have serious implications both for the person making the gift and the person receiving it. For instance, if a council rules that a deliberate deprivation of assets has occurred, it has the power to claim care costs from the person the assets were transferred to.
Time is of the essence
When a council assesses someone's financial situation there is no set formula to how far back in time they go.
But obviously, if someone has suddenly spent a lot of their savings shortly before needing residential care, alarm bells will ring.
Clearly, the longer the time between the money being used or gifted and the need for care, the harder it will be for the council to establish a link and allege that avoiding paying for care was the main reason.
As you can see, this is an incredibly complex area. If you are thinking about gifting any assets, particularly transferring property, it's vital to take independent legal advice.
It may also be worth considering a Will Trust, structured to help protect your estate for your loved ones particularly when you have children from a previous marriage or looking at co-owning and co-occupying options.
To see what we have written recently on gifts and inheritance tax, click here.
For help and advice, please contact Wards Solicitors' Wills, Probate and Mental Capacity team, now one of the biggest in the South West. The majority of its lawyers are either student or full members of Solicitors for the Elderly. In addition, Jenny Pierce, who leads the team, was recently appointed to its board of directors.