If you would like to protect your family home from care home fees you should first think about how likely it is you will require such care, how much it might cost and whether you have other income and assets to fund it without using your house.
Care home fees and gifting your house
You could gift your house to your children. Bear in mind though that if your child later separates from a partner or divorces, or dies, or gets into financial difficulties, or indeed simply falls out with you, you might not be able to retain the security of the roof over your head. Additional documentation can help but may not fully protect against those risks.
Care home fees and putting your house in trust
The alternative is putting your house in trust to protect you and your home from those risks. Putting your house in trust has potentially immediate inheritance tax (IHT) charges. You also need advice on how to preserve capital gains tax reliefs on a later sale of your home. There may also be tax returns to do. On setting up a trust there are compliance and reporting obligations to HMRC. If setting up a trust, you need to think about who would be the appropriate trustees – those who would then in control of the house. You also need to think about who the beneficiaries would be, taking account of your needs and of who ultimately is to inherit the house after your death.
Gifting your home – the risks involved
A gift of your home may have consequences for the main residence nil rate band allowance for IHT when you die. The gift requires examination of the title deeds, legal documentation to transfer title and registration forms required for the Land Register to change the legal title.
You should take careful advice on the deliberate deprivation rules which means the local authority have scope to claw back gifts for care home fees so there is a real risk that changing ownership might not work at all. Simply giving assets away with the primary or main intention of avoiding care home fees amounts to the deliberate deprivation of assets and does not mean that you will not have to pay for, or contribute to, future care home fees. If a person moves into a home within six months of making a gift, then the local authority have extensive powers which enable them to take action directly against the recipient(s). If the gift is made more than six months beforehand, the local authority can still take the value of the gift into account, but they are unable to take action against the recipient(s). If a gift of the house is to be made, a gift to trust has a number of advantages over an outright gift.
Using a will to protect the house from care home fees
In the case of married couples, some simple changes to wills are likely to be helpful. Married couples who own their house together can protect part of their house from care home fees. By putting in place a will that leaves the first to die's estate to the survivor in a trust, the first to die's estate can be protected against any residential care home assessment that might take place during the survivor's lifetime. This type of structure is more robust from the deliberate deprivation risks that are associated with lifetime gifts, but it only protects half of the value of the house and has no advantage if both parties to the marriage are in a care home.
As you can see, there are many considerations you should be aware of when planning for the future and we would always encourage taking advice from a solicitor beforehand.
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