Can you protect your assets from care home fees in the UK?
Can you protect your assets from care home fees in the UK?
There are legitimate ways to protect some of your assets from care home fees, but fewer than the adverts suggest, and none of them involve simply giving things away. If a council decides you disposed of money or property to avoid paying for care, it can assess you as if you still owned it. Signing your house over to your children, or paying to have it moved into a lifetime trust, can turn out to protect nothing at all.
Most people asking this question are not trying to cheat anyone. They have worked, paid off a house and saved what they could, and they would rather their children inherited something than watch it all go on fees at the end. It is one of the most common worries we hear.
In a hurry?
You cannot simply give away your home or savings to avoid care fees. If a council decides that was the aim, it can assess you as if you still owned what you gave away, and there is no time limit on how far back it can look. Legitimate planning does exist, though. This article explains how the rules work, why so-called asset protection trusts deserve caution, and what genuinely holds up.
Speak to a specialist adviser →The frustration is understandable too. Care funding has been reviewed and debated for decades without much changing, and while governments put off the difficult decisions, families keep facing the bills. Plenty of companies have spotted that anxiety, and sell lifetime trusts and estate plans that promise to put your home and savings beyond the council's reach. Some are soundly put together. Many are not, and the families who sign up tend to find out too late.
Whether any of it works comes down to one rule most people have never heard of, called deprivation of assets. Once you understand it, it becomes much easier to see which plans hold up and which fall apart.
This article covers what the rule says, where trusts fit in, and what you can legitimately do:
What is the deprivation of assets rule?
The deprivation of assets rule lets a council treat you as still owning something you deliberately gave away to reduce your care bill. When you ask for help with care costs, the council assesses your finances, and it is allowed to look backwards as well. If it decides that avoiding fees was a significant reason for a gift, a transfer or a sudden run of spending, it counts the value as if you still had it and charges you accordingly.
Two things matter when a council makes that judgement. Did you get rid of the asset partly to avoid care fees? And at the time, could you reasonably have seen care coming? Someone fit and healthy in their fifties, making gifts as part of ordinary estate planning, has little to worry about. Someone signing their house over to the children a month after a dementia diagnosis is in a very different position. Councils are not supposed to assume the worst, but they are entitled to ask awkward questions about timing.
There is also no waiting period after which a gift becomes safe. Inheritance tax works that way; the care rules do not. A council can look back as far as it thinks relevant, and if it finds deprivation it can sometimes recover money from the person who received the gift. Anyone who tells you a transfer is safe once a fixed number of years has passed is describing a rule that does not exist.
It is worth being clear about what going wrong actually looks like. A council that finds deprivation does not pay, so the fees still have to be met from somewhere, and that burden can land on the family member who received the gift. And even where avoidance succeeds, the result is rarely what people imagined: local authorities pay set rates, and the choice of care homes at those rates can be narrow. Sailing close to the wind can leave someone with less money and less say in their own care.
Does putting your house in a trust protect it from care fees?
Putting your house in a trust does not reliably protect it from care home fees, whatever the brochure says. The trusts in question are usually marketed as asset protection trusts, home protection plans or family protection trusts, often by will-writing and estate-planning firms rather than regulated advisers. The pitch is always the same: pay an upfront fee, transfer your home into a lifetime trust, and the council will not be able to touch it. The problem is that it can. If it decides the trust was set up to avoid care fees, the transfer counts as deprivation like any other, and the house is assessed as if it had never left your hands.
By that point you will usually have paid a substantial fee and given up control of your own home, for protection that was never real. Unwinding a badly built trust can be slow and expensive too. These trusts have drawn repeated warnings from trading standards and consumer bodies over the years, and anything sold at a seminar or on the doorstep with a guarantee attached should make you wary.
Trusts themselves are not the problem. They have perfectly good uses, such as providing for a vulnerable family member or holding assets for children. What matters is why one was set up. A trust with a genuine purpose behind it, put in place with proper advice, is a world away from one that exists to get around a means test. But no trust is beyond scrutiny, and the reason it was created is exactly what a council will ask about.
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Join our readers →What legitimate planning options exist before care is needed?
There are legitimate options, and the most established of them is surprisingly ordinary: it sits in your will. Where a couple own their home jointly, a solicitor can restructure the ownership so that each partner's share passes on the first death into a trust for the survivor, rather than to the survivor outright. The survivor carries on living in the house for the rest of their life. But because half of it was never theirs, a means test years later cannot count that half. Nothing has been given away and nothing has been hidden; an inheritance has simply been directed. Arrangements like this are long established and usually put in place by a solicitor and financial adviser together, and they still need a genuine estate-planning purpose behind them, with the thinking written down at the time.
Insurance takes a different approach: rather than sheltering assets, it caps what care can cost. An immediate needs annuity, bought when care starts, pays a guaranteed amount towards the fees for life. However long care goes on, the family knows from day one the most it can ever take from the estate. We covered these in more detail in our recent article on funding long-term care.
Timing does a lot of quiet work as well. Drawing on pensions, savings and investments in a sensible order changes how long money lasts. Gifts made gradually over the years, as part of ordinary estate planning while care is nowhere in sight, are hard for anyone to call deprivation. The earlier you start thinking about this, the more options stay open, and the better the picture looks if a council ever asks.
Weighing up how to plan for care costs?
Care fees planning covers exactly this ground: what the rules allow, and how to structure what you have so your plans hold up. Our advisers help families across the UK think it through, whether care is years away or already needed.
Care fees planning advice →What role do pre-funded care plans play in asset protection?
Pre-funded care plans barely feature any more, for the simple reason that you can no longer buy one. Insurers stopped selling them years ago, which is a shame, because they did exactly what many people now wish they could do: deal with the risk in advance, in good health, and leave the rest of the estate alone.
If you or a relative took one out in the past, dig out the paperwork. An old policy may still be valuable, and its terms should be checked before any other decisions are made. For everyone else, the same job is now done by the tools above: a will structured with care in mind, money earmarked early, and an annuity to cap the cost if care arrives.
What's next?
This is an area where sound estate planning and mis-sold trusts sit side by side, and the right answer depends on your health, how you own your home and what you most want to protect. Part of an adviser's job here is to tell you plainly what is realistic and what is not worth your money. It is worth having that conversation before doing anything, and certainly before signing anything.
Our Chartered Financial Advisers offer a free initial consultation to anyone who wants to plan for care costs in a way that stands up to scrutiny.
We work with clients across the UK. Locally, we advise clients throughout Kent and East Sussex, including Tunbridge Wells, Sevenoaks, Maidstone, Tonbridge, Crowborough and Eastbourne.
This article is for general information only and does not constitute personal financial advice or a recommendation. The suitability of any investment approach depends on individual circumstances, objectives and the current regulatory environment. Tax treatment and investment rules can change over time, and their effect will depend on personal circumstances. Investments can go down as well as up, and you may get back less than you invest.
