What does 'deliberate deprivation of assets' mean?

Happy senior lady sitting at wheelchair in nursing home for elderly

Ask the expert at Smith & Pinching about transferring ownership of a property while paying for care fees - Credit: Getty Images/iStockphoto

My mum has early signs of Parkinson's Disease and we anticipate that she will probably need to go into care at some stage, so have begun to look at what that means in terms of costs and what support she might get from the government. We’ve talked about perhaps putting the house in my name so that doesn’t get swallowed up by care fees. Is that a good idea?

Matthew Hinchliffe, Independent Financial Adviser with Smith & Pinching 

Matthew Hinchliffe, Independent Financial Adviser with Smith & Pinching - Credit: Smith & Pinching

Matthew Hinchliffe of Smith & Pinching responds:

There are a number of issues here. Firstly, if your mum gives you the house with the sole purpose of reducing the value of her assets to get help with care fees, this might be considered “deliberate deprivation of assets” and the value of the house could well still be taken into account in the means assessment undertaken by the Local Authority, who provide support for care fees. She could find herself still having to pay fees without the ability to sell the house to meet the cost.

There are potential future Inheritance Tax liability implications too, as if your mum puts the house in your name and then continues to live there, the gift might be considered as one with “reservation of benefit”. This means that although she has made the gift, she is continuing to benefit from it. As a result, the value of the house could still be counted in her estate when she dies. Do take independent financial advice if Inheritance Tax is a potential concern.

You did not mention if your mum lives alone in the house. If she is living with a spouse/civil partner or dependant, then the house may not be taken into account in the means assessment for care fee support.

The second issue is that of choice. While support for care fees is there for those that need it, Local Authorities will only provide funding up to their standard rate, which could limit the choice of care home. Self-funding will always give the person in care the greatest choice in the type and level of accommodation.

There are ways of limiting the erosion of your mum’s estate through care fees. These include the purchase of a special care fees annuity – often known as an Immediate Care Plan – which would provide a top-up to income for life. It would require a significant capital sum to purchase a plan but you would have the reassurance that your mum may not need to make further inroads into her estate, however long she were to live.

If retaining the house is important to her, it might be possible to rent it out when she moves into care with the rental income providing the necessary top-up to her pensions to pay for her care.

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Any opinions expressed in this article do not constitute advice.

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