Care fees funding and deprivation of assets: the rules
Member of Solicitors for the Elderly and Associate with Clarke Willmott LLP Heledd Wyn shares how to protect your parent from the possible pitfalls of a Local Authority investigation and what to do to ensure their financial actions aren’t deemed to be deprivation of assets.
If your parent is thinking about making a gift to a family member there are a number of considerations that ought to be taken into account. One very important factor is whether the gift could fall foul of the deprivation of capital rules that apply when a Local Authority is funding care for an older person. Here we look at those rules and how they could apply to your parents.
What are the “deprivation of capital” rules?
When assessing someone’s ability to pay towards their care the Local Authority will be guided by the Charging for Residential Accommodation Guide (CRAG) which we have discussed elsewhere on the site. CRAG is the Local Authority’s “bible” setting out the rules and how to apply them. The rules differ between England, Wales, Scotland and Northern Ireland so be aware that this could affect how they apply to your parent.
Your parent will be entitled to Local Authority funding towards care fees if he or she has capital of less than £23,250, with full funding at the Local Authority rate being available if your parent’s capital is £14,250 or less. In most cases when assessing a person’s capital the Local Authority will take into account the value of a person’s home and also the amount of any savings.
If, however, the Local Authority believes that your parent has deprived themself of capital then this will be deemed to be “notional capital” which will be added to your parent’s actual capital in assessing their care fees contribution. Deprivation of capital is deemed to have taken place when an asset is disposed of with the intention of qualifying for greater care fees funding.
George, for example, has savings of £12,000 and his home is valued at £175,000. A few months before moving into care George gives his home to his two children. The Local Authority believes that George deprived himself of his home in order to qualify for care fees funding. George’s capital will be treated as comprising actual capital of £12,000 and notional capital of £175,000 meaning that, for the time being, George is not entitled to any Local Authority funding.
Is every gift caught by these rules?
The motivation behind the deprivation of capital is key and reducing liability for care fees has to be a significant factor, but even where this is not the only motive, the gift may still fall foul of the rules.
If your parent decided to make a cash gift to you from savings, at a time when he or she was becoming frail, with the dual motivation of helping you to buy a bigger home and trying to reduce their future liability to pay for care fees, then this gift could be viewed by the Local Authority as a deliberate deprivation of capital by your parent.
The time when the gift is made is crucial. CRAG states that it would be unreasonable for a Local Authority to decide that there was a motive to qualify for greater care fees funding if the gift was made at a time when the person making the gift was fit and healthy and could not have foreseen the need to move into care.
This means that if the gift set out above is made when your parent is fit and healthy and living independently then the likelihood of the Local Authority successfully claiming that there has been deliberate deprivation of capital is much more remote.
Is it only gifts that are affected?
Although gifts are probably the most common transaction that could fall within the deliberate deprivation rules, CRAG provides that your parent could be regarded as depriving themselves of assets if they adopt an extravagant lifestyle, pay off a debt at a time when it seems unreasonable for the debt to be repaid, or convert assets into property that is disregarded from financial assessment under the relevant rules.
This latter category needs some explanation: ‘disregarded property’ does not form part of the capital taken into account in the financial assessment of means and includes personal possessions, certain life assurance products(including some investment bonds), and your parent’s home for the first twelve weeks that he or she is in care.
If your parent were to convert capital such as savings into disregarded property, with the intention of qualifying for greater care fees funding, then the Local Authority could regard this as deliberately depriving themselves of capital. So if your parent used savings to buy an expensive piece of jewellery shortly before going into care, the Local Authority may treat the value of the jewellery as notional capital and not as disregarded property.
Will the value of notional capital decrease over time?
Yes. The Local Authority will treat the notional capital as decreasing by the difference between the amount your parent is paying towards their fees and the amount that they would have paid had they not owned notional capital. Taking the example of George above, he is assessed as having capital of £12000 and notional capital of £175,000 and has to pay £400 per week in care fees; if he did not have any notional capital then his care fees would be fully funded. His notional capital will be treated as decreasing by £400 per week, the difference between the two amounts.
How can the Local Authority enforce payment of the fees?
If a gift leaves your parent unable to pay their care fees then the Local Authority still has a duty to provide care. If, however, an asset was given away within six months of your parent entering care then the Local Authority has statutory powers to recover the asset or lump sum of money, from the person to whom the asset was transferred, in order to pay it towards care fees. So if the transfer of George’s house took place in the six months before he went into care his children could find themselves paying his care bills.
Alternatively, the Local Authority might treat the care fees as an accruing debt and pursue recovery in the civil courts, or they could have recourse to insolvency legislation to try to have the transfer set aside on the basis that it was made with the intention of defrauding creditors.
How is the decision made by the Local Authority?
The decision should be made by the Local Authority taking into account all available evidence, and in accordance with CRAG guidelines. If it is not then this could form the basis of a challenge to the decision made.
How can you appeal a Local Authority decision?
If you disagree with a decision made about your parent then a review should be requested and, if this fails to resolve the decision, a complaint could be made using the Local Authority complaints procedure. Following this a complaint to the Local Authority Ombudsman could be considered.
If this does not result in a satisfactory conclusion, then you and your parent could consider taking legal advice as to whether the decision could be challenged through the courts, perhaps using judicial review if it was felt that the decision making process was flawed in some way.
Clarke Willmott LLP is a national law firm specialising in eldercare law and financial issues including care fee funding, Powers of Attorney and Court of Protection. If you’d like expert advice on legal matters for your elderly relative call Heledd Wyn on 0845 209 1495 or email more information.
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