Paying for Care
Part 2 – Deprivation of Assets
In part 1 I looked at what assets were assessable and what were not. So isn’t it just easy to convert assessable assets into exempt ones? Well it may fail what is known as the “deprivation of assets” test.
The test is whether or not an individual has intentionally deprived themselves of assets for the purposes of avoiding care fees and that it was reasonably foreseeable with they would need care. It does not have to be the only reason for the potential deprivation; it just has to be a significant reason. So when people give money or their house away, if their estate was under the nil rate band for inheritance tax, what other reason is there to give it away? Deprivation of assets is likely to be inferred, which it can be.
The key issues to this are whether the deprivation was to intentionally deprive and whether care was reasonably foreseeable. It is an issue of whether the individual who undertook the transaction (which is commonly a gift) did it for reasons of deprivation or for some other reason. If the individual can show that they had another significant reason for the transaction, then it may get past this test. The other point is whether care is reasonably foreseeable and old age alone doesn’t count. Most people don’t end up in care, the statistics show it is around 20-25% of people that do end up in care, which means the majority don’t, even though the percentage that do is still a lot of people. The issue is whether that person is suffering from a condition that is likely to mean they end up in care. So if they have dementia, then the answer to that question would be yes, they do have a condition that means they might end up in care, it is “reasonably foreseeable”. If however someone gives away something and the next day they have an unexpected stroke, then it wasn’t reasonably foreseeable, as long as they have not had any indication that this was likely to happen and it was in fact unexpected.
So what can be a deprivation and what can happen?
A straightforward gift to another person or a gift into trust may be deprivations, as may a purchase of disregarded assets, such as paintings or antiques. Also excessive spending, such a luxury holidays may also be considered a deprivation. Whether or not it was a deprivation would depend on the circumstances around the gift or transaction at the time it was undertaken.
As for what can happen, there are 3 key time frames: if the individual needs Local Authority care funding within 6 months of the date of the gift s.21 HASSASSA allows the Local Authority to pursue the receiver of the gift for the cost of care. If the individual requires care funding within 5 years of the date of the gift, the Local Authority can apply to have that person made bankrupt and the Trustee in Bankruptcy has the power to undo the transaction and return the assets to the individual.
The final period of time is the difficult one, as it is unlimited, so if the Local Authority believes that the individual intentionally deprived themselves of assets, then they will assess them as if they still own those assets, this process leaves the individual in a difficult situation and has implicit pressure on the receiver of the gifts to fund their care. However the Local Authority also has a duty to provide care for an individual within their area in need of it and cannot avoid that duty, so as difficult as it will be, if the receiver of the gift refuses to pay, the Local Authority will have to fund any shortfall of fees, as part of their duty to provide care.
A lot of this blog is couched in “maybes” and that is because this is a tricky area and I cannot give specifics about advice, each case will turn on its own facts, so if in doubt, seek specific advice on your circumstances.