One of the most common misunderstandings that clients have about funding residential care...

“If we sign our property over to our children, after seven years it cannot be used to fund residential care”.

It is possible to make an outright gift of any amount, called a potentially exempt transfer (PET). Providing you do not retain any benefit in the property gifted, and you survive for a period of seven years, the value of the PET does not form part of your estate.  If you die within seven years, the value will be counted as part of estate, but any Inheritance Tax attributable to it may be reduced depending on how many years elapsed between from the date of the gift and whether the PET uses up your Inheritance Tax allowance on death.  However, this rule only applies for the purposes of calculating Inheritance Tax on your death and does not apply to gifts into a trust.

If you make a gift during your lifetime and subsequently require Local Authority funding for residential care, the Local Authority can make enquiries about your assets and the circumstances and timing of any disposals of your assets. There is no ‘seven-year rule’. If the Local Authority considers the disposal was made to deliberately deprive yourself of assets, it can assess you as if you still had them or take steps to recover them, depending on the circumstances.  The Local Authority will consider various matters such as the length of time that has passed between the time the gift was made and when the donor required funding, and the age and general health of the donor at the time the gift was made.  There is, however, not set period after which you are ‘safe’. 

There are also other important implications to consider before transferring the legal title in your home to other people (even if they are very close family members) or to a trust and taking legal advice at an early stage to understand your options is vital if you are concerned about care fee planning.  

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If you need advice regarding this or any other Wills, Trusts & Probate matter please contact our specialist  team. 

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