Paying for care and deprivation of capital
Articles:
Paying for care and deprivation of capital
It is common to want to pass on savings and other capital to children or others. Points to consider when deciding to transfer your home are as follows
Matters affecting the person making the transfer (the “donor”)
- The donor may at some point in the future want to move home from their current property to somewhere more suitable for their needs at the time. If they have transferred their home, they will need the consent of the person they gave the property to (the “donee”). Also the donee can dispose of the property against your wishes;
- They may lose their home if the donee becomes bankrupt or gets divorced;
- If the donor no longer owns their home, they cannot earn income on it or raise capital against the equity in it;
- The donee may be treated as still owning their home for inheritance tax purposes if they continue to live in it under the “gift with reservation” rules.
Matters affecting the new owner of the asset (the “donee”)
- The donee may become liable for Capital Gains Tax at some stage in the future;
- Their entitlement to means tested state benefits may be affected, such as income support, pension credit, housing benefit or council tax;
- They may become liable to pay to maintain the property and this may cause a dispute
Deprivation of capital
If the donor chooses to transfer their asset out of their name it does not necessarily mean that it will not be taken into account by the local authority in a means test. The council can, when deciding a claim for assistance, look for evidence of deliberate or intentional deprivation of capital. A transfer of capital will be regarded as deliberate if a person transfers an asset out of his or her possession in order to put him or herself in an improved position to obtain assistance.
What is deprivation?
The term “deprivation” has a wide meaning and can include the followings instances:
- Transferring ownership of a house or flat to someone else
- Putting money into a trust
- A lump sum payment such as a money gift or to pay off a debt
- Reducing capital through large expenditure (for example, extravagant living)
- Selling an asset for less than its market value
Deprivation that is deliberate
An act of deprivation must be deliberate. Its effect must reduce resources available to pay care home fees which are clearly and to the knowledge of the person making the gift likely to fall due in the near future. It need not be the only motive; it must be a significant one. The following questions must be considered:
- How healthy was the donor when they made the disposal?
- Was a move to a care home foreseeable at the time of the disposal?
- What explanation can be given for the transfer of the asset other than to intentionally deprive the person making the gift of resources available to pay for care? For example, was the donor compensating a long term carer, mitigating inheritance tax, or seeking to achieve the effect of immediately passing value of the gift to a donee to deal with as they see fit.
The test is subjective, in that the local authority must look for reasons behind the gift and not just draw a conclusion by mere implication of the circumstances.
Notional capital
If the donor is found to have deliberately deprived themselves of capital they will be treated as having “notional” or imaginary capital to the value of the asset disposed.
Powers of recovery
Where a donor is found to have deliberately deprived him or herself of an asset the local authority can recover any sums which it consequently has to pay towards their care costs from the person who received the asset. However this power can only be used if the deliberate deprivation occurred within six months of the donor approaching the local authority for funding.
Where this option is unavailable, the local authority can take civil debt proceedings and/or apply to the court for an order setting aside the transfer.
What to do if you do not agree with a decision that deprived yourself of capital?
You can challenge the decision by using the local authority’s complaints procedure. This is usually in three stages.
Stage 1-an informal discussion with the section of the council dealing with your application
Stage 2-if stage 1 does not lead to a change of mind, you make a formal complaint in writing which the authority must investigate and respond to within 28 days
Stage 3-if you are still unhappy then you must take your complaint to the local authority review panel. The panel will consist of three people, at least one of whom must be independent of the council.
Stage 4-if the panel decides against you, you can take the matter to the Health Service Ombudsman
It is important to note that the local authority is responsible to arrange payment for care which it arranges. In such a case the authority will seek to recover the charge from the resident in the normal way.
If you have any questions regarding the above please contact Michael Stennett by telephone 020 8920 3190 or by email on michaels@stennett-stennett.co.uk, or you can visit our office at 4 Winchmore Hill Road, Southgate, London N14 6PT.