Continuing with the intriguing subject of deliberate deprivation in the context of applying for help with long-term care costs – a particularly relevant issue for individuals considering making gifts or investing in potentially disregarded ass ets such as life insurance policies – the following important factors should be considered:
If assets are placed in the name of, say, a child, the original owner will no longer be able to use those assets. In the context of a gift of the family home, the original owner will no longer be able to sell the property, perhaps in order to buy a more suitable place, for example, a sheltered flat, or to raise cash to boost income.
It may be possible to persuade the new owner to give back or sell the assets but it will be the donee's decision if they do so and whether the proceeds of the sale will be used for the benefit of the original owner. Similarly, it may not be possible to prevent the new owner from selling a property or other assets without the agreement of the original owner.
If assets or property are gifted, the original owner will no longer have those assets from which they can raise income or capital, for example, to pay for help to enable them to remain at home, to maintain the property or to buy a more suitable property.
If a person gives away a property and retains the right to live in it rent-free, or makes a gift of investments but continues to enjoy the income, the gift could count as a gift with reservation of benefit for inheritance tax purposes. It is likely to be included in the value of the owner's estate for inheritance tax purposes.
For example, if a person transfers assets to a trust under which they are a potential bene ficiary – so they retain a deg ree of access – one cannot say, in those circumstances, that the gift is made for IHT purpo ses because the gift with reservation of benefit rules mean it is ineffective for IHT purposes.
This point is relevant as some legal practitioners are of the view that giving away property as part of a bona fide IHT planning exercise will remove the asset gifted from the means test. Of course, if the donor had no interest in the trust, it would then be effective for IHT purposes but the security question would come into play, which may be very relevant if a need for long-term care did not materialise.
If the person to whom a property is gifted marries, div orces or uses the property as security for a loan, it may aff ect the original owner's right to remain in the property.
In short, the rules currently are that people with assets valued at more than £16,000 will not be eligible for assistance and so will be asked to pay for all their care costs. Once the value of their assets has fallen below £16,000, a person will be asked to pay part of their care costs. It is only when their assets have fallen below £10,000 that the state will meet the full costs of their care.
Although only a minority of people need long-term care, it can cause a damaging effect on their wealth. With this in mind, the previous Con ser vative Government took act ion to improve the situation. First, in April 1996, it doubled the maximum savings allow ance that is permitted before state help can be given tow ards the costs of care. This is now £16,000.
In March 1997, with a view to trying to encourage people to make private provision (and reduce the adverse publicity over people being forced to sell their home to meet the cost of care), it issued a policy statement with draft legislation which proposed disregarding £1.50 of a person's assets for every £1 of long-term care insurance cover that they had arranged.
Of course, following the subsequent change in Gov ernment, this proposal was killed off, so to speak.
The case of Yule v South Lanarkshire Council, in which the local authority assessed the value of the property given away by Mrs Yule prior to going into a nursing home as notional capital, caused some anxiety and raised questions on what was likely to happen in similar situations in the future.
It is generally well known that when an individual app lies for financial assistance with nursing home fees, the local authority will carry out a financial assessment of the individual's resources in order to establish the level of contribution that has to be made by the individual. The individual's income and any capital in excess of £16,000 will be taken into account.
If the local authority is aware that the individual has made gifts of property before applying for assistance, it has two enforcement options.
First, it can seek to recover care fees to the value of the gift from the donees where the gift was made within six months of the donor entering residential care (section 21 of the Health and Social Services and Social Security Adjudi cation Act 1983.
The other option is to make a determination under regulation 25 of the National Assistance (Assessment of Resources) Regulations 1992 that the gifted property rem ains notional capital of the donor and is to be assessed as such. There is no time limit on the operation of regulation 25.