How to protect inheritance from a nursing home

December 2023

How To Protect Inheritance from A Nursing Home In December 2023

The idea of a loved one moving into residential care can be a daunting and emotional experience for any family. Alongside the physical and emotional considerations, there is the financial impact. 

With care home costs in the UK ranging from £30,000 to £50,000 per year, it is easy to see how these fees can quickly erode an individual’s hard-earned assets, including the family home.

This article will discuss how to protect the inheritance from nursing homes, understand the care home fees and costs, and explore the options available to help families plan and protect their assets.

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Overview of the issue: how to care home fees can erode an inheritance

With an ageing population, the demand for residential care is rising, with local authorities needing help to keep up with demand. This, in turn, leads to increased care costs, which can cause significant financial strain on individuals and their families. 

According to research, around one in four people will need to pay for residential care permanently, with the average cost for a place in a residential home ranging from £600 to £1,000 per week. This can quickly add up, leading to losing personal assets, including the family home, and reduced inheritance for loved ones.

Importance of planning to protect assets and inheritance

Planning to protect assets and inheritance from being eroded by care fees is crucial. This means taking the time to consider all available options and getting professional advice where necessary. As well as ensuring financial security for the individual and their family, careful planning can also help reduce the emotional stress and anxiety of the possibility of losing personal assets.

Understanding Care Home Fees and Costs

Before looking at the options for protecting an inheritance from nursing homes, it is essential to understand care home fees and costs. In the UK, care home fees can be split into residential and nursing care. 

Residential care is where an individual requires assistance with day-to-day tasks, such as washing and dressing, while nursing care is where an individual requires the attention of a registered nurse.

Residential care costs vary depending on location, with specialist care fees in London typically higher than those in other parts of the country. On average, residential care fees in the UK range from £600 to £1,000 per week, with nursing home fees typically costing more due to the additional medical care required.

Financial Assessment for Care Home Fees

The local authority will conduct a financial assessment to determine an individual’s eligibility for financial assistance with care home fees. This assessment considers an individual’s income, savings, and assets, including the family home.

If an individual’s assets exceed the savings threshold, they will be expected to contribute to their care’s cost.

Deferred payment schemes are available in some local authorities, allowing individuals to defer payment of their care home fees until later. However, this deferred payment agreement may only be an option for some, and the local authority decides whether an individual is eligible for this scheme.

Local authorities offer financial assistance to help cover care costs. However, to qualify, a means test is usually required to determine financial eligibility for such assistance. An individual’s income, savings, and assets are considered to determine the level of financial assistance they may be eligible for.

Deliberate Deprivation and Deprivation of Assets

In some cases, individuals may attempt to avoid paying care home fees by transferring assets, such as the family home, to family members or setting up trusts.

However, local authorities have the power to investigate deliberate deprivation of support, which is when an individual transfers assets for the sole purpose of avoiding care home fees.

 If the local authority believes deliberate deprivation has occurred, they can take legal action against the individual or family member who received the assets to avoid care fees.

Protective Property Trusts

One option for protecting an inheritance from nursing home fees is to set up a protective property trust. This type of trust allows an individual to transfer their share of the family home into a trust while retaining a life interest in the property.

This asset protection trust means that the individual can still live in the property for the rest of their life, but the share held in the trust is protected from care home fees.

Protective property trusts can benefit individuals who own their homes jointly. When the first partner dies, their share of the property is transferred into the trust, ensuring they are protected for the remainder of their life. If the surviving partner requires residential care soon, only their share of the property will be considered when assessing care home fees.

However, protective property trusts do come with some drawbacks. For example, suppose the surviving partner decides to move out of the property. In that case, the trust will be dissolved, and the property will become an asset considered when assessing financial eligibility for care home fees. 

It is also important to note that protective property trusts can be complex, and it is recommended to seek specialist legal advice before making any decisions.

Life Interest Trusts

A life interest trust is another option for protecting assets and inheritance from nursing home fees. This type of trust allows an individual to leave their share of the family home to a loved one while retaining the right to live in the property for the rest of their life. 

This means that the property will not be considered when assessing financial eligibility for care home fees, as the individual still has a right to their own home and live there. However, it is essential to note that life interest trusts can also be complex and unsuitable for everyone. It is recommended to seek professional advice before making any decisions.

Legitimate Reasons for Asset Transfers

While transferring assets to avoid care home fees is not a legitimate way of protecting inheritance, there are some legitimate reasons for asset transfers. 

For example, individuals may choose to give financial gifts to their children while they are in good health rather than waiting until after death. This can help reduce inheritance tax and ensure that loved ones receive their gifts while the individual is still alive.

planning to protect inheritance

Can I use a will to protect my estate from care home fees?

While a will is an essential part of estate planning, it cannot be used to protect assets from care home fees. Any assets left in a choice are considered part of the individual’s estate and will be considered when assessing financial eligibility for care home fees.

Paying for a care home fees can be a significant financial burden for individuals and their families. However, options for protecting inheritance and assets from care home fees, including protective property and life interest trusts, are available. 

It is essential to seek professional advice before making any decisions and to ensure that any asset transfers are for legitimate reasons. Careful planning and consideration of all available options can help provide financial security and reduce the emotional stress of the possibility of losing personal assets.

By taking the time to understand care home fees and costs, and exploring all available options, individuals and their families can protect their assets and inheritance from being eroded by care home fees. 

Additionally, understanding the financial assessment process, deferred payment schemes and the consequences of deliberate deprivation can help families make informed decisions about paying for care.

With the help of specialist legal and financial advisors, families can navigate the complex world of care home fees and protect their assets for future generations.

Other options for protecting assets include equity release and care annuities. Equity release allows individuals to release tax-free money from the value of their home, which can then be used to pay for care home fees. Care annuities are another option for care, which involves paying a lump sum to an insurance company for a guaranteed income for life.

It is important to note that there are significant risks associated with equity release and care annuities. It is essential to seek personalised advice before making any decisions, as these options may not be suitable for everyone.

Protecting inheritance and assets from care home fees is a complex process that requires careful planning, professional advice, and consideration of all available options. 

By understanding the financial assessment process, the consequences of deliberate deprivation, and the different options available for protecting assets, individuals and their families can ensure financial security and reduce the emotional stress of the possibility of losing personal assets. 

Whether through protective property trusts, life interest trusts, equity releases, or care annuities, families can take steps to protect their assets and inheritance for future generations. With careful planning and personalised advice from legal and financial specialists, families can navigate the complex world of care home fees and protect their assets for years to come.

"With an ageing population, the demand for residential care is rising, with local authorities needing help to keep up with demand."

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What assets are exempt from care home fees?

While most assets are considered when assessing an individual’s financial eligibility for care home fees, some are exempt. For example, the family home is exempt if a spouse, partner, or dependent relative still lives there. 

Personal possessions and household items, such as furniture and clothing, are exempt. Some disability benefits are exempt from financial assessments for care home fees, such as Disability Living Allowance and Personal Independence Payment. 

However, it is essential to note that the rules surrounding care home fees and asset exemptions can be complex and may vary depending on individual circumstances. It is always recommended to seek professional advice before making any decisions.

Care Home Fees and Costs

What are the disadvantages of putting your house in a trust?

Putting your house in a trust can have some disadvantages. One disadvantage is that it can be a complex process, and it is essential to seek professional legal advice before making any decisions.

Additionally, once the house is in a trust, it is no longer owned by the individual and cannot be sold or mortgaged without the trustee’s permission. 

This can limit the individual’s financial flexibility and may cause issues if they need to move or access the equity in their home. Another disadvantage is that the house may still be considered an asset for financial assessment if the individual requires care home fees. 

While some types of trusts, such as protective property trusts, can help protect the family home from care home fees, it is essential to understand the different options and seek professional advice before making any decisions.

Are next of kin responsible for care home fees in the UK?

In the UK, next of kin are not typically responsible for paying an individual’s care home fees. The responsibility for paying care home fees lies with the individual receiving care. However, the individual cannot pay their care home fees. 

In that case, the local authority may assess their financial eligibility and ask family members or friends to contribute to the costs if they can.

It is important to note that there are specific rules surrounding economic assessments for care home fees, and it is always recommended to seek professional advice before making any decisions.

Does the 7-year rule apply to care home fees?

The 7-year rule, also known as the 7-year gift rule, applies to inheritance tax in the UK. It refers to the time an individual must survive after making a gift before being exempt from inheritance tax. 

However, the 7-year rule does not apply to care home fees. Any asset transfers made to avoid managing home fees can be considered deliberate deprivation of assets and may still be considered when assessing financial eligibility for care home fees. 

Understanding asset transfer rules and seeking professional advice before making decisions is essential.

How much does it cost to put your house in a trust in the UK?

The cost of putting a house into trust in the United Kingdom can vary depending on several factors, such as the type of trust, the property’s value, and the complexity of the legal documentation involved.

Common trust types include bare trusts, interest in possession, discretionary, and life interest trusts, each with distinct legal requirements and fees.

Depending on the solicitor or legal professional involved, the trust’s complexity, and the property’s location, the cost of establishing a trust can range from several hundred to several thousand pounds. Consider additional expenses such as stamp duty, land registry, and ongoing management fees.

It is essential to consult with a lawyer, legal specialist or solicitor specialising in trusts and estate planning to ensure that the trust is set up correctly, is legally sound, and is tailored to your specific needs and goals.

Financial Assessment for Care Home Fees

Does a Will trust protect assets from nursing homes?

Even though a Will trust can provide some level of protection for assets from nursing homes, there are no guarantees. A will trust is a type of trust that becomes effective upon the death of the testator (the person who created the will) and can assist in managing and protecting their assets after death.

When a testamentary trust is created, the assets are transferred to a trustee who manages them for its beneficiaries. If an individual requires long-term care in a nursing home, the local authority, or local council, may conduct a financial assessment to determine their contribution to the cost of their care.

The provincial government can consider any assets held in a trust, including those in a testamentary trust. However, a properly structured testamentary trust can help reduce the assessed value of assets, potentially resulting in a lower care contribution.

Creating a life interest trust, for instance, can enable the testator to leave their home to their children while retaining the right to live there for the remainder of their lives. This may prevent the home from being sold to pay for care costs by lowering the residence’s assessed value.

It is essential to seek the counsel of a barrister or solicitor who specialises in trusts and estate planning to ensure that the trust is set up correctly and tailored to your specific needs and goals.

 Additionally, it is essential to note that there may be legal and ethical considerations when using trusts to protect assets from nursing homes. Acting within the law and with transparency and fairness towards all parties involved is necessary.

What are the different ways to pay for a care home in the UK?

Local authority funding, self-funding, NHS funding, equity release, annuities, and the care home fees deferred payment scheme are among the many ways to pay for a care home in the United Kingdom.

If you are assessed as requiring care and have limited financial resources, your local government may contribute to the cost of your care.

Self-funding

You can pay your nursing home fees privately with savings, investments, or real estate assets. This can provide more options for care homes, but it can be costly and may necessitate careful financial planning.

NHS funding

If you have complex medical needs, you may be eligible for NHS Continuing Healthcare funding, which can cover the cost of in-home or residential care.

If you own your home, you can release equity from your property to pay for nursing home costs. This may entail obtaining a lifetime mortgage or selling a portion of your home to a specialised lender.

A Care Annuity

A care annuity is a financial product that provides a regular income in exchange for a lump sum investment. This can help pay for nursing home expenses.

Care home fees deferred payment scheme.

Some local governments offer this scheme that allows you to defer payment of your care home fees until later, typically when you sell your home.

It is essential to seek professional guidance from a financial advisor or specialist in later-life planning to determine the optimal payment method for nursing home costs.

Careful financial planning can help you afford the care you need without placing an undue financial burden on yourself or your family.

Meet the author

Jane Parkinson

Jane Parkinson

Jane is one of our primary content writers and specialises in elder care. She has a degree in English language and literature from Manchester University and has been writing and reviewing products for a number of years.

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Frequently Asked Questions

Why is planning to protect assets and inheritance from care home fees critical?

Care home costs can quickly erode a person’s hard-earned assets, including the family home, making it essential to plan to protect assets and inheritance from care home costs. Individuals and their families can alleviate their financial burdens and secure their futures through prudent planning.

What options are available for protecting assets and inheritance from care home fees?

Care annuities, protective property trusts, life interest trusts, equity releases, and care annuities are all viable options for shielding assets and inheritances from nursing home expenses. Before making any decisions, it is essential to seek professional guidance, as these options may not be suitable for everyone.

What assets are exempt from care home fees?

Some assets are exempt from consideration when determining a person’s financial eligibility for nursing home fees. For instance, the family residence is exempt if a spouse, partner, or relative still needs support. Also exempt are personal property, household items, and some disability benefits.

Are next of kin responsible for care home fees in the UK?

In the United Kingdom, relatives are typically not responsible for paying an individual’s nursing home costs. The individual receiving care is responsible for paying his or her nursing home fees. However, the local government may evaluate their financial eligibility and ask family or friends to contribute if they can.

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