Navigating Care Home Fees and Deprivation of Assets: What You Need to Know
- theresaholden2
- Jun 18
- 6 min read
I wish I had a £1 for every time I explain to clients that they cannot give away their assets during their lifetime in order to successfully avoid paying their nursing home fees in the event that they subsequently need care. Unfortunately, it is not only those without appropriate training in this field who believe that making assets disappear is okay. Many will writers and other professionals are seemingly of the opinion that transferring assets out of one’s name will protect them from nursing home fees. It won’t! There is no magical seven year period (that only applies to inheritance tax) outside of which the authorities cannot insist that assets given away can be recovered from whoever you gave them to.
The rules are very simple.
If you reduce the value of your estate by giving away value (be that pound notes, houses or any other asset) to others and then you need a care home in the future but cannot pay for it, then you will fall foul of the deprivation of assets rules. The authorities can and regularly do go after those assets. They may ask for them to be returned to you or, where this is not possible, they will ask whoever received them to pay your nursing home fees.
The worst offenders for placing people in this position are companies that offer protection of your property from nursing home fees by placing that property into a trust during your lifetime. Please be fully aware that this may cost you many thousands of pounds to set up. It is a deprivation of assets and therefore does not work, and it may cost you many thousands of pounds to return to the status quo.
Some of these companies, having set up the lifetime trusts, very often called ‘Family Probate Trusts’ or ‘Family Protection Trusts’, suggest that you should appoint the directors of a Trust Company to be the trustees of your new trust. Your home is then transferred into the names of the trustees – sometimes you can be a trustee also, other times not. You must appreciate that if someone other than you is named as the Proprietor on your title deeds, that person or company will need to be a party to any future dealings in your property. If you wish to sell your property in the future, you will have to seek the permission of all of the trustees, and following the sale, the net sale proceeds will have to remain in the trust unless you have the express permission of all of the trustees to distribute part or all of the fund to you. This would have to be done by Deed.
These trust companies very often charge for simply considering whether you should be allowed to sell your own home; they even charge for signing documents, even if you prepare them yourself!
In addition, many of these lifetime trusts are discretionary trusts. A discretionary trust is one where there is a class of beneficiaries, i.e., children or grandchildren, rather than one or more named persons who will receive a set amount or percentage share. With a discretionary trust, the trustees at the time use their discretion as to whom to pay the trust fund to. If you are the settlor of a discretionary trust, you will immediately lose your right
to claim the additional property nil rate band allowance for inheritance tax purposes, which can be worth up to £175,000. Generally, where a property is concerned, the gift into the trust does not work for inheritance tax either because it is a gift with reservation of benefit, i.e., you may have transferred the house out of your ownership and into the ownership of trustees, but you continue to live there, so the value of the property does not fall out of your estate for inheritance tax purposes.
If it is a discretionary trust that has been used, then there is a need to report the value of the trust to HMRC on every ten year anniversary (and potentially pay the inheritance tax due at that time if the value has increased over and above the nil rate band of £325,000). The trust will need to be registered on its creation with the Trust Registration Service, and if the property is ever rented out, tax returns will need to be prepared on an annual basis and income tax paid on the income received at the higher trust rate.
We were recently asked for assistance by the daughter of a couple who had put their property into a lifetime trust for the purpose of protecting the house from nursing home fee assessment and so that the value of it could eventually pass to their daughter. Unfortunately, both parties had to go into a nursing home. The husband was physically frail, while the wife had lost mental capacity.
The Local Authority contacted the couple’s daughter to ask for the property to be sold in order that their care home fees could be paid. The couple had run out of savings, even though the husband qualified for Continuing Healthcare Funding, meaning that his fees were paid by the authorities.
The daughter came in to see us to ask for assistance in selling her parents’ home (which had stood empty for some while). When we looked into the situation, the property was owned by the trustees of a trust set up by the parents during their lifetime. The trustees of that trust were the parents, one of whom was incapable of signing anything due to dementia, and two professional trustees could not be found.
This caused months of unnecessary stress and pressure for the daughter, who found herself completely helpless. She was perfectly willing to sell the property so that her parents could receive the care they needed, but she was unable to do so because of the trust and the fact that there was one mentally incapacitated trustee and two trustees who had disappeared. The Local Authority insisted the fees be paid, but the daughter could not pay, and she could not sell the house to pay either.
The only way out of this situation was for the daughter to make an application to the Court for the mother to be removed as a trustee and for another trustee to be appointed in the mother’s place, which would have enabled the property to be sold. By this time, we had found the two professional trustees (who were no longer practising). They had no knowledge of the trust or of the people involved but, but thankfully, they agreed to retire as trustees. In the meantime, the Court application was prepared and the papers submitted. This is a very expensive procedure, and it takes an extraordinary amount of time for the case to even be heard by the Court.
Sadly, the father then died. Mother lived for a further 11 months, and the fees owed to the Local Authority continued to rise. By the time the mother died, the fees due were in excess of £120,000. There were now no surviving trustees, and therefore, it was a much simpler situation to rectify from a legal perspective. New trustees were appointed, and the property was sold. The debt was paid to the Local Authority, and the matter concluded.
However, the daughter spent the last couple of years she had while her parents were still alive fighting to gain access to their property to pay their fees. At the end of it all, the money was not protected; it still had to be paid to the Local Authority, and the daughter had had to deal with all the stress and worry caused.
None of us wants to see the value of our main asset (usually), that is, our property, dissipated because we were unfortunate enough to need assistance toward the end of our life, but unfortunately, despite governments of many different persuasions telling us how unfair the system is and suggesting fees be capped at a particular level, nothing ever happens. Nursing home fees in 2026, on average, range from £1,300 to over £1,600 per week, that is £5,630 to £6,933 per month. At the higher level, which generally applies to dementia care patients, it would only take 41.83 months, less than 4 years, to completely wipe out the value of an average home in the UK of £290,000.
If you are a couple, there is something that can protect half the value of your property in the event that one of you goes into a nursing home, but setting up lifetime trusts and transferring your property into the hands of trustees that you do not even know is not one of them.
Please call the office on 02392 001551 to make an appointment if you would like to discuss this further.
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