Lifetime Trusts and the Nursing Home Fee Conundrum
By Richard Cussell
The Government has recently announced changes to the way in which nursing home fees are to be paid. We are now told that eventually we will not have to pay more than £86,000.00 towards our nursing costs. However, in my view, this is not close to as good as it sounds. If you require a nursing home in Somerset then the average costs for all of them is now at least £1,000.00 per week. Of that an element is in respect of your care. A further element (perhaps the larger element) is in respect of your “hotel” costs. The costs of having your room, the heating, the entertainment, the food and so on. Even though the Government may assist us with regard to the care costs I do not think for a moment that this will cover general accommodation costs. The nursing home fee problem is still with us.
I am quite regularly seeing clients because they are concerned about preserving their assets for the next generation. It is surprising how often I am able to tell them that they do not have a problem. If you think about it your pension and capital needs to generate around £50,000.00 per annum. Let us say that I am speaking with a widow living in a house in Wells worth £400,000.00 with £100,000.00 in the bank and a pension income from state pension and perhaps occupational pension of £20,000.00 per annum.
If she were to require a nursing home then her £500,000.00 could be invested. I do know that interest rates are very low. I also know that most independent financial advisers will tell you that even in a conservative portfolio will over the course of time bring in at least a 4% return. 4% of £500,000.00 is £20,000.00 a year. That together with her pension achieves £40,000.00 a year. The shortfall against £50,000.00 worth of nursing home fees is therefore not that great. £500,000.00 might last for 50 years. Even after 10 years it will not have depleted by much.
It is worth doing the mathematics to see whether you really have a problem.
Statistics also suggest that the problem is not as great as you might think it is. Only one out of six of us over 80 end up in a nursing home. The way the media portrays it I think we all feel that it is rather more than that. Rather grimly when we do go into a nursing home statistically we are only in there for an average for 15 months.
The general rule with regard to handing over assets to the next generation in order to try and save nursing home fees is called “intention to deprive”. It is nothing to do with the 7 year rule which is in relation to gifting and avoiding inheritance tax. The intention to deprive rule counts whether you gave an asset away one year ago or ten years ago or any time at all. Admittedly it is very difficult for a local authority to trace and prove over time that an asset was given away with the intention of depriving the state of it.
Recently I have had a number of clients come to see me because they have had third parties trying to sell them lifetime trusts or family protection trusts. The idea here is that for a not insignificant sum of money it is suggested to them that if they transfer their assets into a trust where they are still the beneficiaries of the trust they will avoid the nursing home fee problem. I do not believe that that will work. If I was asked by the local authority to defend a situation where a couple had transferred their assets from themselves into a trust where they were still the beneficiaries I cannot see how that could be anything other than intention to deprive. My advice is simple. Do not be persuaded to buy products such as these from third parties visiting your homes without at least taking advice and guidance from those of us who have been dealing with these problems for many years.