Deprivation of assets
With a means test determining whether you pay your care costs or if they're picked up by the state, some people may question whether it's possible to give away their assets to ensure that they can qualify for state support. Although you may hear stories of this happening, this practice, known as deprivation of assets, can cause all sorts of problems and does not guarantee you will receive state support.
Giving your home away to family
The home, which is usually the largest asset, can be the main one people may consider giving away.
However, it will not remove the value of the property from the means test. When your Local Authority carries out your financial assessment to determine whether you are eligible for state support, it will ask whether you own or have ever owned a property.
If the answer is yes, further enquiries will be made and if these indicate the property was given away to avoid paying for care, your Local Authority will treat it as if you still owned it. It would then add the value of the property to your other assets and no funding would be available until this had been sufficiently depleted by care home fees to fall below the lower means test limit.
There are no time limits on how far a Local Authority can go back when considering deprivation of assets. Additionally, if the property was given away before you needed care, the Local Authority could ask the recipients of the property to pay a contribution towards your care.
Other examples of deprivation of assets
Local Authorities will also look for other examples of deprivation of assets such as:Asset protection trusts
Asset protection trusts work by putting property into a trust for someone else, for example friends and family, so it is no longer held in the name of the individual seeking care. Fees for these trusts can run into thousands of pounds.Investment bonds
Putting money into investment bonds is one of the most common ways people try to protect their assets as they are technically non-income producing insurance products and are therefore exempt from the care fees mean testing process. However Local Authorities will include bond income within the means test. Giving money away
People often try to reduce the amount in their own bank accounts by giving away cash to friends and family as a lump sum, to help pay off debts or create a deposit for their own home.Extravagant expenditure
For some, the easiest way to reduce their capital is to spend on expensive holidays and an extravagant lifestyle.
Where these instances occur the Local Authority will assess whether asset deprivation was the intention.
The risks associated with asset deprivation
Whatever method is used to try to protect or reduce capital prior to needing care, whether at home or going into a care home, there are risks involved.
If it is considered that people have deliberately deprived themselves of their assets, these assets can be regarded as ‘notional capital’, meaning it is still taken into account when deciding on level of assets available.
If assets have been deliberately transferred to others, the Local Authority can also seek to reclaim them. Previously this applied if the deliberate deprivation occurred within six months of the individual approaching the Local Authority for care funding. However Local Authorities are now looking further back and they can still refuse to fund care if the transfer occurred more than six months before the application for help.
Deprivation of assets can have other consequences beyond being found out by the Local Authority. If long-term residential care is never needed and they have given away the majority of their assets, they may struggle financially in the future. Once an asset has been transferred, the new owner has complete control over it.
Giving away your home could cause other problems too. For example if you gave your home to your children and carried on living there, and they were declared bankrupt or divorced, they might have to sell the property, potentially making you homeless.
With so much at stake, it's sensible to take specialist advice to enable you to make informed decisions about your care funding options. Find a local, qualified care funding adviser.