Deliberate deprivation of assets
If you are planning on moving into a care home and your local authority is carrying out a financial assessment, they will enquire about assets that were previously owned in addition to any current assets you may have. With properties in particular, it is very simple for authorities to trace the ownership history, so it is advisable to always be 100% truthful in regards to your previously owned assets.
If your local authority comes to the conclusion that you have purposely gifted your assets to increase your eligibility for local authority care home funding, this is called “deliberate deprivation”. This covers things such as gifting your home to your child, or selling an asset to a family member for far less than its genuine value in order to ensure it is no longer a part of your estate.
Obviously not all gifting of assets are deliberate deprivation; there are a wide variety of justifiable reasons for people to give away assets to family members. You may, for example, be looking to gift your children or grandchildren with lump sums of money to avoid paying inheritance tax, and so you are able to enjoy seeing them benefit from it. Stephensons have worked with clients in the past who have done so; for example, gifting grandchildren money to go towards a deposit on a property, or gifting children money to spend on a once-in-a-lifetime holiday.
What defines the gifting of assets as “deliberate”?
If your local authority is conducting a financial assessment to determine who should be responsible for paying for your care home fees, they will take a variety of things into consideration when deciding the outcome. For example:
- Amount – have you gifted a significant amount to a family member or friend which will make a noticeable difference to their capital?
- Reason – if you have gifted your assets to relatives, was this done specifically to avoid paying for your own care home fees? Or did you simply want to see your relatives enjoy their inheritance before you ever knew you might need to pay for care?
- Timeframe – when did you gift your assets? If it was quite a while before you were ever in the position where you might need to move into a care home, it is highly unlikely that this will be considered. Although if it was done quite recently, your local authority might question your motives and it may be considered as notional capital.
What is notional capital?
If you have gifted your assets to avoid paying care home fees and your local authority decides it has been done deliberately, the total value of your assets can still be taken into account as part of your financial assessment, despite that fact that you may no longer own them.
The total value of your assets that you currently own and used to own is your “notional capital”, which could affect the local authority’s responsibility for paying your care home fees, and mean the relative you gifted your property or savings to may be responsible for paying your care home fees. This is why gifting your assets can have serious consequences, and should be done as far in advance as possible if you believe you may need to pay for your own care home fees in the future, to protect both yourself and your relatives. Furthermore, if your local authority has been paying for your care fees but later concludes that you have gifted assets deliberately in the past to avoid being financially responsible, they may be able to enforce powers of recovery.
What are “powers of recovery”?
If, in the future, you are living in a care home with your fees being paid for by your local authority, and they rule that you deliberately deprived yourself of assets, they may be able to enforce “powers of recovery” - the power to claim the care costs back from the individual who the assets were gifted to. This means your children or grandchildren could end up having to pay back your care home fees to your local authority in a lump sum.
By law, your local authority may have the power to recover finances by beginning County Court proceedings, although this should only be done as a last resort when they have attempted other means of recovering the debt. There are a variety of options when it comes to protecting your capital as well as avoiding breaching your Local Authority Guidelines; for example, evidence of receipts for legitimate expenditure, repaying debts and purchasing an investment bond. However, the most popular option, for a number of reasons, is setting up a discretionary trust.
