You might be concerned about the rising cost of care fees – many people are. You might also have heard people mention “tenants in common” as a way of preventing your home being included in a means assessment.
And so it’s only natural to wonder, as some of my clients in Bristol have asked me, “If I change my house to ‘tenants in common’, can I avoid paying care fees?”
There are a few different aspects to this question, so let’s look at each in turn, beginning with how care fees work. By the end, you’ll see hopefully see how all the different pieces relate to each other.
Care fee costs
First, who pays for your care fees if you have to move into a home? Care fees are means-tested so currently, if you have more than £23,250, you do!
The value of your property isn’t counted if there’s someone living in it (e.g. your spouse). But remember that your finances will be reassessed every year. So in other words, the value of your house will enter the equation at some point if you continue to need care.
If social services were you to put you in a home, there may be a short grace period of a few weeks where the funding is paid on your behalf. But after that, your “liquid” assets such as pensions and other income, plus bank accounts and savings, will be used to fund your stay.
Bear in mind that there may be a few different ways to fund care yourself. Insurance products, for example, are available through financial advisers. Or, if you’re not living in your house, you may be able to rent it out and use the rental income.
How much is care, exactly? If you’re not already aware, you’ll be shocked. I recently looked into the costs and found that residential care was around £1,100 per week, including food. Nursing care, whereby a qualified nurse lives on site and is available 24/7, cost £1,500-£1,600 per week.
Obviously these prices will vary in different parts of the country and from care home to care home. You may find cheaper care homes, and I’m 100% sure you’ll find more expensive ones too.
So a conservative estimate, allowing for price inflation would be care home fees costing around £60,000 a year. Frankly, I’d expect them to cost a lot more.
Again, under the current system, once your finances fall below the £23,250 level, you are entitled to some Government support. And when you get down to your last £14,250, that’s it. From that point on, the state will fund your care.
Your relatives will at least inherit £14,250 minus the usual costs like funeral expenses.
The issue for many people I meet in Bristol is that they don’t have much in the way of savings. So in their case, “liquid assets” would quickly run out. At that point, a local authority would recoup any unpaid care bills from the sale of the property. If a spouse is still living there, this would be done when they move out or pass away.
Not surprisingly, a lot of people – who understand that care is expensive – would prefer their children to inherit the asset they worked so hard to buy, rather than the state claiming it. Some people genuinely don’t mind but some they feel they’ve paid enough taxes already.
So with the aim of protecting the value of your house, how does “tenants in common” help?
Tenants in common vs joint ownership
It’s at this point that we have to break off and look at two different ways of owning a property.
- joint tenants
- tenants in common
The method of ownership is reflected on the Land Registry title deeds, although confusingly it doesn’t use those exact words.
Also confusing is the word “tenant”. To be clear, this is nothing to do with renting. Here, we are talking solely about people who own a property (either outright or mortgaged).
Joint tenants is simple to understand. Imagine that a house is owned jointly by a couple. (For the sake of this example, it doesn’t matter if they are married or not.)
If one dies, the surviving owner now owns 100% of the house. It doesn’t matter what their Will says, or even if they had a Will at all. The surviving owner now owns it. Last one standing, as it were.
But with tenants in common, the house is effectively owned 50% by each joint owner. Now when one dies, their 50% of the house passes to the people they’ve named in their Will. Or, if they don’t have a Will, it passes by the rules of intestacy.
But here is the important part…
I would never advise just doing tenants in common alone. Never. Ever.
Why? Well, suppose that the owner who is now deceased made a Will that left their half of the house to their children. The children now own half of the house and the surviving spouse owns the other half.
It’s not unknown for people to fall out with their children. People have been legally thrown out because the children wanted to sell up. Or their children put them under pressure to go along with things they didn’t want to do, just to avoid losing their home.
Or how about this scenario: your children die before you. You could end up with a very uncomfortable situation where half of the house is owned by someone that the surviving spouse does not get on with (a son-in-law or daughter-in-law, for example).
Having said all that, tenants in common is a good idea. But only if it’s accompanied by an appropriate type of Will – one with a Trust that protects the surviving partner’s right to live in the home.
But what does all this have to do with care fees?
Trusts protect assets
Suppose that the house is now owned as tenants in common and both partners have Wills that contain Trusts.
One partner dies and their Will comes into force. Their half of the house is now owned by a Trust. The survivor continues to live there and obviously still owns their half.
At some point in the future, the surviving partner goes into a care home and a means assessment is done. The local authority, then, should not include the 50% held in Trust because it does not belong to the person needing care – it is legally owned by the Trust.
This means that tenants in common, plus accompanying Wills, have prevented half of the property from being included in a means assessment for care fees.
Note that only half is protected. This approach can only ever protect a portion of the property, not the whole house.
Also note that these Wills are like any other Wills. They only comes into force when the person has died. So if both partners need to go into a care home, you’re out of luck. Both partners are still alive so nobody has died to “activate” the Trust in either Will.
That said, this is a popular form of estate planning and Trust Wills have many other benefits. One of those is that they avoid “sideways disinheritance”, as I’ve explained to my clients in Bristol. If you download the free factsheets (see button below), you’ll be able to read about these benefits in more detail.
The other thing to note is that local authorities take a dim view of “deliberate deprivation”. In other words, if they think that care was foreseeable at the time you made the Wills, and you did it deliberately to avoid care fees, they might argue the case with you.
The obvious solution is to make Trust Wills when you are middle aged and in good health. It would be tough for anyone to argue that you’d done it deliberately at the time, not least because there are many other reasons why these Wills are a good idea.
The other issue is that this method can only ever protect half of your property – the half that formerly belonged to the deceased spouse. One person dies and their half is then owned by a Trust. The remaining half can still be assessed by the local council if the survivor needs to go into a care home.
So yes, “tenants in common” can be part of the answer if you wish to preserve the value of your house for future generations. But it’s not the whole solution by itself and it has drawbacks.
You also should not discount other ways of self-funding your care fees, such as renting out the property, because it may not be necessary to protect your house just for this reason alone.
All that being said, there’s no harm in putting planning in place sooner rather than later, and that goes for estate planning in general.
If you’d like to chat about any of the issues raised in this article, do get in touch. If I’m unable to help you myself, I will do my best to pass you on to someone who can.