How can I stop a house sale financing care home fees?

8 March 2010

"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.

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