Long Term Care – Willtrust Ltd

Property Protection Trust and Family Protection Trust

In Scotland, in line with the rest of the UK, the Government has tasked each and every Local Authority with a Duty of Care to provide for Long Term Care for those needing it. Whilst they have this Duty of Care to provide and fund this, they also have wide seeking powers to recoup these costs from the individual and their family. This includes forcing the sale of your residential home (and any other assets) and using the proceeds to pay for your care costs.

Under the Community Care Act 1990 which came into force on the 1st April 1993, this gives the local authority powers to calculate your assets and capital at the time you are taken into care. Furthermore this includes any assets that you may have given away in the past and if they decide that such an act was a deliberate attempt at depravation of your assets in order to avoid paying for future care costs then the local authority has the power to reclaim these assets to pay for any care fees that are due or asses you as if you still owned these assets.

In practice in Scotland, the council can take anything over £15,250 and if your total property and if you have assets over the value of £24,750, you are required to pay in full for your long term care costs. Anyone going in to care is means tested and all your assets are taken into consideration. This includes your home along with any land or property, money, shares and household contents etc.

With you having to pay all your care costs the local authority will exhaust all of your money, shares and savings before they will then force you to sell your home to recover and cover their costs. So really only the last £14,500 of your assets are protected. These are the plain facts.

Let us now look at the actual consequences and costs in a bit more detail:

current care costs range from £600-£900 per week depending on the area you stay in
maximum benefit payable to you is £237 per week for the Personal Nursing Care element
you have to pay for the difference, hundreds of pounds every week, say up to £35,000 per year
with an average 5 year stay that is a massive £175,000 you will have to pay
that is £175,000 that the government is taking away from your children and loved ones
according to official government statistics 70,000 homes (that is 200 per day) are forcibly sold each year within the UK to fund for individuals long term care costs and this figure is expected to rise dramatically
in too many cases, the family home which took years of hard work to own, is sold in its entirety to fund these care costs, leaving your children with nothing.

Having looked at the consequences and costs, let’s look at the facts and figures surrounding long term care issues statistics:

1 on 3 women currently go into care
1 in 4 men currently go into care
1 in 4 of the elderly can expect to spend their final years in a nursing home
Almost 50% of over 65’s have a disabling condition
By the age of 80, 70% of us will need some form of long term care
100,000 this year alone will suffer from a stroke
650,000 people over the age of 65 suffer from dementia
1 in 2 people are expected to go into care due to our ageing population

Some sobering statistics however are you prepared to do anything about it? Unfortunately there is nothing you can do about the facts and figures surrounding long term care. However you can certainly make sure you do not become one of the 70,000 people who are FORCED to sell their homes.

Willtrust Ltd can show you how this is done in a cost effective manner with the correct use of either a Property Protection Trust, which will protect up to 50% of the value of your property or better still with the use of a Family Protection Trust, which will protect 100% of your property thereby ensuring that you will have the peace of mind that the home that you worked so hard for will go to your children and not the Government.

You may well think that the odds of 1 in 4 of us being taken into care are fairly favourable meaning that 3 in 4 of us will not. Now put that into perspective. Would you walk down to your local betting shop and bet everything you own, and we mean everything including your home, car, cash in the bank and building society, investments and everything else you own including the shirt on your back on a 4/1 shot at Aintree. Most folk would say no.

However the sad fact is that without either the relevant Property Protection Trust or Family Protection Trust in place you have actually made that bet.

Your Options

Do nothing and hope for the best. This saves you paying anything now but could cost you dearly later on.
You could transfer your assets to your family and many people use this as a common solution. However you then lose control of your assets and things can go wrong. If the family member falls out with you, gets divorced, is made bankrupt or dies before you, in each case there will be serious consequences for you.
Even worse, unless the family member lives with you, when the property is sold there will be a Capital Gains Tax to pay on the increase in value between the time of the transfer and the time of the sale.
You can buy an immediate care cost plan. This involves waiting until you are about to go into care and then paying a considerable lump sum to an insurance company who will then make monthly payments, hopefully to cover the care costs. This is an expensive way of paying for care which could have probably been avoided in the first place.
You can purchase a Protective Property Will Trust. This has been specifically designed for the purpose of protecting up to 50% of the home from care costs. When the first person dies their half of the property goes into a Will Trust. This means that the council cannot touch the deceased’s assets or share of the family whom whilst allowing the surviving partner to continue to benefit from the assets or the share of the family home within the Trust. Upon the death of the survivor the share of the house within the Trust, along with any other additional assets left will be distributed to the family.
However, this Trust is only available to couples and does have certain drawbacks. If the survivor then goes into care, that half of the house will be protected from the survivors care costs, however the local authority will expect to recover the care costs from the survivors half of the property. The family could argue that it is difficult to sell a one half share of a house, that half has no value, but local authorities, in our partner solicitor’s experience, say they do not generally accept that argument. And even if they do it means that the property cannot be sold at the very time when the family would wish it to be sold.

You can purchase a Family Protection Trust (FPT), which is technically a Lifetime Discretionary Trust. The client who sets up the Trust is called the Settlor. The client is usually one of the Trustees. It is normal to appoint two professional Trustees to act along with the client. You keep your Capital Gains Exemption so there is no tax to pay when your house is sold. Your family has no executor procedure to pay for when you die.

How does it work?

You set up the Trust and you put your house and the bulk of your assets into it. You should regard the Trust as a safety deposit box. You can access the capital at any time provided the majority of the Trustees agree. You can access an income from the Trust. One of the most important aspects is that you continue to control the assets. You have no administration to worry about. If there is a dispute with the local authority the technical Trustees will deal with that on your behalf. You can even change your mind and take your assets back out of the Trust provided the majority of the Trustees agree. Remember that if you have your assets in a Trust then they should be protected but assets outwith the Trust remain vulnerable.

Does it really work?

Provided that you use a firm of solicitors that specialises in this field and that you set it up at the right time. Our preferred solicitors have studies and case studies available. Remember the Family Protection Trust solves many different problems. However as regards care costs it is advisable to set up the Family Protection Trust when your need for care is not foreseeable. If you are basically fit and healthy when you put your assets into the FPT then we would expect the local authority to meet your care costs (so far as not covered by your income and Free Personal Care) and not even try recover the costs from your assets. If you leave it too late in the day, then the FPT may still be successful but it will be more difficult and therefore as is the case for most asset protection planning the sooner you set up the FPT the better.

How much can I put in?

The Family Protection Trust is not designed to avoid Inheritance Tax. If you have an IHT problem then we will work with you to solve that problem first of all. There are complex IHT rules surrounding the setting up of a Trust. You must not put more than your lifetime allowance (£325,000 for 2012/13) into the FPT otherwise you will have to pay 20% IHT on the balance. Every 10 years the value of the Trust Fund must be calculated and if the value at the end of the 10 years is above the then Nil Rate Band the IHT at 6% on the excess will be payable. There can also be IHT payable when the Trust is closed but only if the value of the Trust fund is too high. It is important to pay careful attention to the value of the assets to be placed in the Trust but our solicitor’s will help to keep you right.

What about top up charges?

If the local authority is funding the case, the Care Home normally accepts that rate. Otherwise there may be a small top-up, but your Trustees can pay for that.
As you can now see, your children could end up with very little or they could even end up with nothing at all and this could happen if one or both of you are taken in for residential care and you do not take any preventative action The cost of achieving this through setting up a Family Protection Trust, which would typically be between 2 and 6 weeks care cost fees, is very low compared to the cost of losing your home to pay for your future care costs for your long term care and depriving your children and loved ones of their inheritance.

That sounds good but how much does all of this cost?

On average the cost of the Trust is the equivalent to 6 weeks in care. It is usually less than your Executry costs when you die and often a lot less.

Remember too:

You pay it once and then forget about it
You have no annual management charges
You have no charge for the solicitors being Trustees
You have no charge for closing the Trust
You have no charge for the advice process should you require care
You have no charge for dealing with the local authority in the event of a dispute
You have no charge if a Court Action is needed provided our preferred partner solicitors feel at their discretion that there is a reasonable prospect of success and that it is sensible to raise or defend such an Action.

To receive qualified and ethical advice in relation to any aspect of your Scottish Will-Writing and Estate Planning requirements, please visit our contact page.