Deliberate Deprivation of Assets
“Deliberate deprivation” is where you have intentionally reduced your assets for the SOLE and OVERRIDING purpose of reducing or eliminating the amount that you may be charged towards your care and support in the future.
The Local Authority must PROVE that you KNEW you would need care and support in the future or at least that you knew it was SIGNIFICANTLY LIKELY and that you have reduced your assets for the SOLE purpose of reducing the contribution you may be asked to make towards the cost of such care in the future.
Transferring your home into a Trust with the SOLE and OVERRIDING intention of avoiding such an attack means that when the time comes the Local Authority can use its powers to reverse the Trust which effectively means that any such reduction of assets would then be disregarded for the purposes of their calculations.
However if you create a Trust for other specific and relevant reasons and at a time when you could not be judged as having known you would need care in the future and then subsequently go into care in the future, the “side benefit” of those Trusts is protection from the Local Authority being able to take your home into consideration when making their financial assessment on you and in those circumstances, you have modelled your protection legally and correctly and there is no risk of being accused of breaking the deliberate deprivation rules.
To further enforce this fact, at the end of all of our Trusts there is a declaration of all of the specific reasons why they have been set up, none of which will state reduction in care fees naturally. This declaration is signed, dated and witnessed to remove any doubt whatsoever as to the reasons why they were set up in the first instance.
Other reasons for creating a Trust that are relevant and significant include matters which are referred to in the draft Minutes of the First Trustees Meeting (this is not a physical meeting, it is a notification to all trustees together) and an expression of Trust Wishes which it is recommended would accompany the Trust examples of which are below:
- Certainty of devolution – Wills can be changed up to 2 years after a Testator’s death with the agreement of all Executors whereas Trusts cannot
- Incapacity can cause problems in terms of occupation, maintenance, payment of outgoings, etc but if Real Estate is held by Trustees those problems can be sensibly dealt with.
- Upon a transfer of your home to Trust no Grant of Probate is necessary to your Estate as far as that property is concerned (and may not be necessary at all depending upon the value of your other assets at the time of death). That can make for considerable savings in both time and money.
- The Trust itself is flexible and confers a number of possible benefits including the possibility of generation skipping. If for example a son or daughter was sufficiently well off not to need to inherit your Estate then the option would exist for them not to inherit (e.g. perhaps unnecessarily enriching their Estate and potentially giving them extra tax burdens) but for property instead to be directly appointed to or applied in favour of your grandchildren.
- If assets from a Trust are appointed correctly with the use of loan notes those assets, once received by the Beneficiary are protected from:
- Creditor attack
- Divorce of Beneficiaries
- Re-marriage of a spouse after the death of their former spouse potentially causing sideways disinheritance of the children upon the death of the second spouse
- Generational inheritance tax
Trust assets appointed in favour of a Beneficiary in this way do not form part of their Estate as they are technically a debt.
We advise our Clients to protect their assets at the earliest possible opportunity. If you put your home into a Trust at a time when you have not been diagnosed with any condition that would give you reasonable cause to believe that going into care is a distinct possibility in the future and the Trust is created for reasons other than simply the avoidance of care fees, your Trust will succeed.
We never put more than £325k into Trust thus avoiding all fees that would otherwise be associated with such a strategy such as 10 year anniversary fees, exit fees and periodic charges.
Similarly, we never advise you dispose of more than the purchase price of a second or subsequent home ensuring no Capital gains tax issues arise
If dealing with a rental property we will advise on any increase in income tax on rental that might be created in the process of protection. These increases are usually very modest and no way near enough to deter a Client from proceeding with the protection.