How can I stop a house sale financing care home fees?
"My parents own their own house but now live in sheltered accommodation and pay full rent.
"How can I sell their house and ensure the proceeds are not used to
finance a stay in a care home should they need it?
"I want them to be able to spend the money on themselves as they have worked hard all their lives for it."
Ask the Professionals: Philip Pearson, a partner in P&P Invest, says:
With an increasing elderly population, your parents share the dilemma faced by many of how to meet the cost of their care towards the end of their lives while providing the means to pass on a legacy to their loved ones.
The state expects everyone to pay for their own care if they have the means to do so.
Legislation exists to prohibit the gifting of assets in order to become financially dependent upon the state to meet the costs of care.
Local authorities are able to look into a claimant’s past to establish their financial situation prior to making a claim, so it’s very important to plan carefully to ensure your parents don’t fall foul of these procedures.
If your parents are able to afford the rent for sheltered accommodation from their income, then the capital from the sale of the house can be allocated for investment. In doing so, they are making provision for their needs into the future.
If the capital is allocated to an insurance bond (which is an investment), then for tax purposes it is considered as a life insurance policy, where savings and investments are normally excluded as part of a means-tested assessment of your ability to pay for care.
However, regular income from these bonds is counted within the means test.
A lot depends upon the timing between the sale of the house and any potential claim for care costs.
The longer the period, the more chance there is of this strategy being
successful. To further place the bonds at arms length, they could be assigned into a trust. In doing so, this will both create a gift and protect the capital from means-tested assessment.
A test to assess the financial “means” or resources (income, savings, property) of a person to determine whether or not that person is eligible for financial assistance (such as state benefits, legal aid, free prescriptions, etc) from the government. A means test can also be used by the courts to determine whether or not a person is eligible to enter bankruptcy proceedings or if they have the means to repay their debts to their creditors.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).