Giving A Property Away

Can a Parent give their home away to their children to avoid it having to be sold to pay Nursing Home fees?

An explanation of the rules as of May 2007.

Giving a property away
The Local Authority's role
Solutions

2. The Local Authority’s Role

If the local authority decides to pursue the issue of notional capital, it has various options for clawing such capital back, including suing the resident for unpaid care fees and making him bankrupt.

There is no direct right of appeal against a decision on notional capital, or indeed against any financial decision on notional capital, or indeed against any financial decision made by a local authority under the charging regulations. There is, however, a procedure for complaining against decisions which is laid down under the Local Authority Social Services (Complaints Procedure) order 1990. Local authorities must operate such procedures. In particular they must appoint complaints panels, defined as panels “of three persons at least one of whom must be an independent person”. Panels make recommendations only, but must do so in writing and with reasons. Directors of Social Services make the final decision. After that the only further remedy is judicial review, which is directed at the decision-making process rather then substantive law.

Following Beeson v Dorset County Council, the legal position is as follows:

• A determination under re 25 affects an individual’s economic rights, and is therefore concerned with his “civil rights and obligations”.
  
  
• Therefore Art 6(1) of the ECHR (which gives individuals the right to have their “civil rights and obligations” determined by an “independent and impartial tribunal” applies to such determinations.
  
  
• The complaints procedure is adequate to secure the requisite degree of independence and impartiality where there is only one independent member on the panel (CA overruling Administrative court on this point).

1. USING DISREGARDS

The National Assistance (Assessment of Resources) Regulations provide that many items of capital are to be disregarded in the financial assessment for residential care. The policy behind these rules is unclear, but they can be very useful in mitigating care fees.

The disregard on property which is occupied by the spouse of partner of a person who is receiving care in a care home is well known. It also extends, as a matter of law, to occupation by specified relatives of the resident who are either over 60 or incapacitated, and, as a matter of law, to occupation by specified relatives of the resident who are either over 60 or incapacitated, and, as a matter of discretion, to other circumstances where it would be “reasonable” for the value of the property to be ignored. (see Schedule 4 paras 2 and 18 of the NA(AR)Regs). There is nothing to prevent families from “engineering” occupation which would trigger the disregard before a financial assessment takes place.

Personal assets are always disregarded. The definition is, potentially, very wide.

It is clear from the regulations that assets which are disregarded may be given away with impunity. The disregard rules act as a shield which prevents assessment until the property is converted into assessable form. (note the drafting of reg 21). CRAG para 6.058 states:

“The local authority should only consider questions of deprivation of capital when the resident ceases to possess capital which would otherwise have been taken into account.”

So for instance, a client may give all her jewellery to her daughter before entering a care home and reg 25 cannot apply, whatever the value of the gift.

However where the client purchases jewellery using money in a bank account, and then makes the gift, reg 25 can bite, because the client has deprived herself of assessable capital – i.e. cash. It is useful to remember that there will be a deprivation if a person ceases to own a piece of property which she previously owned, and the test of purpose then becomes relevant.

2. TRUST SOLUTIONS

Beneficial interests under trusts are, in principle, assessable under a means test as actual capital. Therefore the creation of a trust is capable of being treated as a deprivation of assets which might lead to an assessment of notional capital. However there are 2 situations where the charging regulations themselves (or the guidance which amplifies them) appear to protect beneficial interest from assessment.

Where the trust is discretionary, CRAG para 10.020 states:

“Where payments are made wholly at the discretion of the trustees and there is no absolute entitlement either to capital or income, only take into account payments which are actually made.”

This means that, in principle, the capital interest in a discretionary trust is immune from assessment whilst it is held by trustees. The transfer into trust is, of course, a deprivation, but provided that the settlor remains a beneficiary of the trust and the trustees have complete discretion, it may be difficult for an assessor to quantify the extent of the deprivation. If that is the case, then intention becomes irrelevant.

Note that the regulations permit some payments out of the trust to take effect without reducing LA financial support. E.g. where they are used to purchase items or services which are not included in the standard charge for the home.

Where there is a life interest trust, any income received by the lifetime beneficiary is subject to assessment. However the charging regulations protect the underlying capital value of the right to receive income:

Schedule 4, para 11 requires a local authority to disregard the value of the right to receive any income under a life interest or from a life rent.

Similarly, in para 5, which requires a local authority to disregard “future interests” protects the reversionary interest. Therefore the deprivation is protected by the disregard rules, and intention is irrelevant

Example:

Client Y puts his house into a life interest trust. He has the life interest; his daughter has the reversionary interest. Y continues to live in the house, but goes into a care home a few months later.

• When the local authority decides to consider notional capital it must disregard both Y’s life interest and his daughter’s reversionary interest. That is because the disregard rules have to be applied to both actual and notional capital. Therefore there is nothing that the local authority can assess and Y’s intention in setting up the trust is irrelevant.
  
  
• If Y has to go into a care home and the house remains unoccupied, the LA may be expected to attribute a notional income to it, so consideration will need to be given to renting it out. If it is sold the income from the proceeds is available to fund Y’s care.

This analysis is supported by a decision of the Social Security Commissioner on income support, where the notional capital rule is in all relevant respects identical. See CIS 231/1991. If the LA chose not to accept it there would still be great problems for the assessor in identifying the subject matter of the “deprivation” and giving it a value.

If you would like to discuss what options might suit you and your family please contact Robert Sayer.