Q: I read your article which explained that putting assets into trust was not a way to get around care costs. My will writer advised me of a ruling that says that Local Authorities cannot recover assets placed in Trust providing they were transferred more than 6 months before the claimant was placed into care. Is this true?

A: I can see where someone might be coming from here but they are a little outdated with that thought process. The most important advice here is to use a solicitor for advice in relation to your estate.

There is no requirement in law at present for a will writer to be legally qualified. Indeed a west midlands MP commented that she indeed had previously given will advice without qualifications and commented that indeed a convicted fraudster could set up a will writing service without any professional indemnity cover or qualifications thereby offering no protection to the consumer.(1)

As you will see the area of estate planning is highly complicated and should only be undertaken with the advice of your qualified professionals, such as your solicitor, accountant and fee based independent financial adviser.

In the comment above your will writer is referring to the HASSASSA 1983 legislation. This states that the above is true however this act cannot be relied on in isolation.

In March of 1995, Mrs Yule aged 81 gifted to her granddaughter for "love favour and affection" her house retaining for herself a life interest in the property. A year later Mrs Yule fell and sustained a broken arm, her health thereafter deteriorated to the extent that she was no longer able to look after herself and she was admitted to a local nursing home.(2)

When you are completing a form for assessment of financial contribution for the local authority, you are asked if you have disposed of any assets in the last six months.

Mrs Yule’s son completed this form and as there was no disposal of any assets in the previous six months he had nothing to declare. The council decided that she should not have the balance of her charges paid for her as her notional capital including her house exceeded £16,000, which was the means test at the time.

Mrs Yule argued that the house had been disposed of more than six months prior and was no longer her asset and under the 1983 Act there was no provision for any gift prior to the six month period.

Unfortunately the correct construction lies with section 87 of the social work (Scotland) act 1968 by virtue of which the 1992 regulations applied. This act provides for account to be taken of any asset that has been given away, and there is no time limit.

So, as long as it could be proven that the motivation was to deliberately deprive herself of capital, she would be treated as possessing the capital at the time of assessment, no matter when the capital was given away.

It has since been held that the deliberate deprivation test has to be carried out on a subjective basis. 

So what was wrong with this case and why did it fail? Basically motivation is everything.

Why would an elderly lady of 81 have given her house away but reserved a right of residence? This will always be open to challenge and difficult to win, so any thoughts of how you might distribute your estate should clearly be talked through with a professional. If it’s reasonably obvious that you are attempting to deprive your estate of capital so as to avoid paying care costs, you will almost certainly be defeated.

Because you are able to use two nil rate bands on second death if you had not used your spouse’s on first death you can easily automatically become the owner of all your spouse’s capital. This is all assessable by the local authority. However if a gift is made on first death this can greatly reduce the value of the estate (sometimes to nil) and not fall foul of deliberate deprivation rules.

If you have a question for Matt on long term care or estate planning call him on 01872 222422 or e-mail mhigham@wwfp.net

(1)     Birmingham post

(2)     Elderly Client Adviser

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Matt Higham is an Independent Financial Adviser with Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority.  'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.

The above represents the personal opinions of Matt Higham.