The cost of care can be extremely daunting and you may be concerned about the impact that this could have on your finances and your family’s inheritance.
There are some providers in the market that will promise you that by setting up a trust (for a fee, sometimes many thousands of pounds), you can exclude assets from means testing for care fees. However, while many of these schemes may seem convincing, you should be very wary of them.
What is ‘deprivation of assets’?
If your local authority suspects that you have put your home or savings into a trust in order to avoid paying care fees then they will challenge you. Transferring assets into a trust primarily to avoid care fees can be determined to be a ‘deprivation of assets’. If it is a clear deprivation of assets – it is not allowed.
If the local authority suspects that you have deliberately deprived yourself of an asset in order to avoid care fees, they may be able to take the following action:
- Treat you as though you still own the asset that has been given away;
- Recover the value of the asset from the person who received the asset;
- Initiate proceedings under the Insolvency Act 1986 to declare you bankrupt;
- Apply for a judgment debt against you in a County Court.
In some cases large legal and/or court costs could be accrued and in addition you may face criminal charges.
But the salesman says if I put the assets in trust when I am healthy, I won’t be caught
This is certainly the argument that some providers will use when selling you a trust. And it is true that it can sometimes be hard for local authorities to prove intent if you set up a trust when you were fit and healthy with no expectation of illness. But this is a real risk to take, as you cannot know how aggressively the local authority will treat your arrangement.
If they decide against you, you could face expense, possible criminal charges, and you may be in a much worse position than you were originally, because your care costs will be charged as if you still own the asset(s), but you will in fact no longer have the asset to be able to pay for your care. In such cases, the local authority may refuse to assist with meeting the costs.
With all this at stake, you should ask yourself – is it worth it?
Other things to watch out for
Is the provider also offering to act as trustee? If so, be cautious. When you set up a trust, you are giving up ownership of the assets, and signing them over to the trustee(s). It is therefore essential to choose as your trustee someone you trust implicitly.
You do not have to appoint a professional trustee. Many people appoint a trusted family member or friend, and for trusts that take effect in your lifetime, you can appoint yourself and your spouse/civil partner/partner as trustee(s) if you wish, so that you retain some control over the assets and the decision-making power. You must, however, exercise this for the benefit of the beneficiaries.
Whatever you do, make sure you are completely comfortable with your choice of trustee. Read our article ‘What should I look for when choosing a trustee?’
There are many good reasons to set up a trust – many of these are set out in our leaflet ‘Why make a trust?’. Avoiding care fees, however, is not one of these, and you should take great care before signing up to anything.
There may also be adverse tax or other implications of putting your assets into a trust, and these need careful consideration before embarking on this course of action.
As you can see, this is a complicated area of law and each person’s individual circumstances will vastly differ. If you are considering setting up a trust, you should speak to a qualified advisor to discuss your specific situation and find a solution that works for you.
Age UK have produced a useful factsheet on deprivation of assets, which you can view here