How to Avoid Gifts being treated as a Deprivation of Assets
Christmas is often the time of year that our clients consider making substantial financial gifts to family members. They might decide to help an adult child or grandchild with money to buy a house or a car, or to pay for home improvements, a holiday, or school or university fees.
But the issue of intentional deprivation of assets with the motivation of reducing one’s liability to pay for care has become a significant source of concern to social services.
Many people think that there is a deprivation of assets “7 year rule” for gifting, in line with Inheritance Tax planning. This isn’t correct – there is no time limit to social services’ investigations of how far back deprivation of assets go.
The Care Act 2014 and its statutory guidance sets out the rules that local authorities must follow when investigating gifting and potential deprivation allegations. The reality is that local authorities often treat family transactions as suspicious, even when there are clear reasons for the arrangements that have nothing to do with avoiding future care fees. For example, moving in with a relative and paying them for living costs and care and support should not be seen as deprivation of assets.
Every person’s circumstances are different, but if a person has made substantial gifts or transferred their property and subsequently asks social services to help pay their care home fees or care at home costs, social services are likely to ask questions about the gifting or transfer.
This might coincide with the person wanting (or needing) to do some inheritance tax planning, using up the annual allowances with financial gifts. In other cases, the family spending time together over the festive period might result in a discussion about downsizing and multigenerational living: in exchange for moving in with their adult child, the parent decides to gift most or all of the sale proceeds from their own home, to pay off the adult child’s mortgage and cover the cost of an extension or conversion.
While this type of gifting sounds like a sensible and practical arrangement, with families helping each other out, and the parent or grandparent sharing assets that they feel they no longer really need, these are often the scenarios which later lead to problems when the person who made the gift develops care and support needs.
The Care and Support Statutory Guidance helpfully states that “people should be treated with dignity and respect and be able to spend the money they have saved as they wish – it is their money after all,” however, “it is important that people pay the contribution to their care costs that they are responsible for.” The guidance also states that “deprivation should not be automatically assumed, there may be valid reasons why someone no longer has an asset and a local authority should ensure it fully explore this first.”
Unfortunately, most local authorities are automatically suspicious of any large transactions or transfers (which they may treat as gifts) made in older age, particularly where someone has used up the bulk of their savings or property sale proceeds within a short period of time, and has dropped to the £23,250 threshold where they will usually qualify for means-tested social care funding.
The factors that the local authority will consider when deciding whether there has been deprivation for the purpose of avoiding care and support charges has occurred are:
- Whether avoiding the care and support charge was a significant motivation
- The timing of the disposal of the asset – at the point the capital was disposed of could the person have a reasonable expectation of the need for care and support?
- Did the person have a reasonable expectation of needing to contribute to the cost of their eligible care needs?
If the allegation of deliberate deprivation is upheld by social services, the outcome for the person who requires care and support, and for their family, can be devastating. Social Services are very likely to refuse to pay anything towards the person’s care home fees, or care at home costs – and the person can no longer pay the costs themselves, because they have given away their assets.
If they are in a care home, the care home will serve notice because of care fee arrears. Social services can also look to recover the transferred or gifted assets from the person or persons who received the money or who now owns the transferred property. As with any other debt, social services can use the county court process to recover monies, but court action should only be initiated after other avenues have been exhausted.
Ultimately, the offer of a large financial gift, or transferring the ownership of the older person’s home, can become a poisoned chalice further down the line.
Therefore, it is important to avoid allegations that there has been a deprivation of assets. Anyone considering this type of gifting or entering into multigenerational living arrangements should take advice from paying for care rules specialists, so that they understand how the rules operate and the potential pitfalls and long-lasting consequences.
For expert advice about care costs and deprivation of assets, including challenging unfair allegation of deprivation, contact our Community Care law team on 01273 609911, or email firstname.lastname@example.org.