Many homeowners worry about having to sell their homes to cover care costs in later life. There are several steps you can take to protect your home, although it is crucial to approach things carefully to avoid pitfalls, such as accusations of “deliberate deprivation of assets.”
- Understanding the Means-Test for Care Costs
Before discussing how to protect your home, it is essential to understand how care costs are assessed:
- Means-Tested Care: In the UK, local authorities conduct a means test to determine who pays for care. Currently, if your capital (including savings and the value of your home) exceeds £23,250, you will generally be expected to pay for your care in full. If your capital is below £14,250, the council pays for your care. Between these amounts, you contribute part of the cost, with the council covering the rest.
- Exclusions: If you need care but continue to live in your home, its value is not considered in the means test. Additionally, if certain dependents continue to live there (e.g. your spouse or a disabled relative), the home may be excluded from the calculation.
- Gifting Your Home
People often speak to us about gifting their home to children or other family members to avoid it being counted in the means test. However, this is a risky strategy and you should be aware of several key issues:
- Deliberate Deprivation of Assets: If the local authority believes you gave away your home (or other assets) to avoid paying care costs, they can treat you as though you still own it when conducting the means test. This is known as “deliberate deprivation of assets.” There is no specific time limit on how far back the authority can investigate, so they could challenge a gift years after it was made if they believe it was to avoid care costs.
- Loss of Control: Once you gift your home, you no longer have legal control over it. If your relationship with the person you gifted it to changes or they face financial difficulties (e.g. divorce, bankruptcy) your home could be at risk.
Due to the risks involved, gifting your home is rarely a recommended strategy and we would urge you to speak to us about alternative options.
- Creating a Trust
A more structured way to protect your home is through creating a trust. A trust is a legal arrangement where you transfer your assets (e.g. your home) into the ownership of trustees, who manage the assets for the benefit of named beneficiaries.
There are two main types of trusts commonly used to protect homes:
- Life Interest Trust (or Property Protection Trust): This allows you to live in your home for the rest of your life, but your property is owned by the trust. When you die, the trust can pass the property to your beneficiaries (e.g. your children) without it being considered part of your estate for care costs.
- Discretionary Trust: This gives trustees full discretion over how to manage and distribute assets. This type of trust can also protect assets from being included in the means test for care costs, but the legal implications and tax consequences can be complex.
While trusts can be a useful way to protect your home, they must be set up properly and there is always a risk that the local authority could challenge the trust if they believe it was created to avoid care costs.
- Joint Ownership
If you own your home jointly with a spouse or partner, the type of ownership matters for care cost purposes:
- Tenants in Common: If you own your home as tenants in common, you each own a defined share of the property (e.g. 50% each). This allows you to leave your share of the home to someone else, such as your children, in your will. If one spouse needs care, only their share of the property is considered in the means test. If the other spouse remains living in the home, it will be excluded from the assessment.
- Joint Tenants: If you own the property as joint tenants, you both own the whole property together. Upon death, the surviving partner automatically inherits the other’s share. This type of ownership may make it more difficult to protect the home from care costs.
Converting ownership to tenants in common and creating a Will that leaves your share to your children – or a trust – could help protect some of your equity from care cost assessments.
- Estate Planning and Legal Advice
Effective estate planning is crucial to protecting your home from care costs. By working with us, you can:
- Draft a well-structured Will that ensures your wishes are followed.
- Set up trusts or make other arrangements that can protect your assets from care cost assessments.
Additionally, staying informed about changes in legislation, such as caps on care costs (set to be introduced in October 2025 under the Care Act 2014), is important for long-term planning.
Seek our Advice
While there are legal ways to protect your home from being used to cover care costs, these strategies carry risks. Gifting assets, setting up trusts or changing ownership structures can be effective, but they must be done within legal frameworks to avoid penalties or accusations of deliberate deprivation.
Seeking professional legal advice is essential to ensure your plans align with current regulations and your personal circumstances. Contact us below for more help and one of our expert advisors will be happy to discuss matters with you.