Should I Sell My Parent’s Home to Pay for Care?
Clients regularly seek advice asking whether they need to sell their parent’s home in order to pay for care. This can feel more complicated if one parent has died and left the property in trust to their spouse. Considering this scenario there are various options available.
A typical scenario for elderly couples
A husband and wife had wills in place that included their home property being left in a trust for the survivor when one of them dies. The husband dies and his wife subsequently owns half of their home with the other half being owned by the trust. The wife then becomes ill and needs to go into a care home.
So what happens next?
Does mum need to pay for her own care?
After her care needs have been assessed, there will be a financial assessment to work out if she will need to pay for care, or if she will receive any support.
Under the current rules, if the person requiring care has assets of more than £23,250 then they will be responsible for paying their own care fee costs. They will be classed as “self-funders”.
If the person requiring care has less than £14,250, then care fees are usually funded by the local authority, but the local authority will usually require the vast majority of the person’s income to be paid to them to be used towards payment of the care fees. The person in care will only be entitled to keep a relatively small amount, known as the “minimum income guarantee”. This is currently £194.70 per week if the person is single and old enough to be receiving the state pension. If the person is a member of a couple and one or both of them are drawing their state pension then they keep £148.55 per week.
For many, their largest asset is their home. The home will therefore often need to be sold so that the proceeds can be used to pay for care.
In our scenario, a financial assessment concludes that mum will have to pay for her care because the value of her share of the home is taken into account.
There are circumstances where the value of the home can be disregarded from the calculations for care fee purposes. A home is disregarded, for care fee purposes, if the owner of a property no longer lives in it but it is occupied (in part or in whole) as the main or only home of one of their qualifying relatives.
Qualifying relatives are:
- The person’s partner, former partner, or civil partner (except whether they are estranged)
- A lone parent who was the person’s estranged or divorced partner
- A relative who is either aged 60 or over, is a child of the person aged under 18, or is incapacitated.
There are, naturally, rules which prevent a member of the family who would qualify as a qualifying relative from moving into the property shortly before or after a person moves into a care home.
If there is a qualifying relative and the house is disregarded, it will not be included in the financial assessments carried out by the local authority. As a result if will not count towards the £23,250 or £14,250 mentioned above.
If there is no qualifying relative, then the house will need to be included in the calculations for care fee purposes.
In our scenario, the value of the survivor’s share of the home will need to be taken into account as there is no-one else living there.
Could we rent out mum’s home and use the income to pay for care?
Yes, this is often worth considering as it could either cover the entire cost of the care required, or make a useful contribution to those costs on an ongoing basis. The usual rules and regulations will apply if the house is rented, such as obtaining the appropriate fire safety and gas checks and it is advisable to have a proper rental agreement in place.
In this scenario, the rental income is insufficient to meet all the care costs, so we need another option.
Could we have a Deferred Payment Agreement even though half the house is in a trust?
A Deferred Payment Agreement (DPA) is an agreement between a local authority and a person requiring care where the person requiring care agrees to a charge being placed on the property in return for the local authority paying a portion of the care home fees whilst the property remains unsold. The payment of care fees (or part of them) is therefore delayed, or “deferred”. The local authority pays the care fees and treats this as a loan to the person requiring care. The loan is protected by the charge on the property, just like a mortgage. Interest on the loan is added to the loan itself, and administration fees are also often added to the loan as well.
If the property is in a person’s sole name (without any part of the property being in a trust) then they would be entitled to obtain a Deferred Payment Agreement. The arrangement would still be subject to meeting other criteria, such as having enough “equity” in the property in the first place, and there not being any other mortgage (or charge) registered on the property.
In our scenario, on the husband’s death his share of the home was placed into a life interest trust for the survivor in his will. On his death this trust is triggered so the property is then held by the trustees of the trust with the surviving spouse.
It is often possible for a DPA to be obtained in these circumstances. Agreement from all the trustees will be necessary, to ensure that that their interest in the property is adequately protected. The local authority may be reluctant to offer the DPA, although there is no inherent reason why a local authority should not agree to the DPA where the property is jointly owned.
Careful negotiation with the local authority may be necessary and this is where a solicitor can help you navigate the system.
For the client in our scenario, a Deferred Payment Agreement is the best way forward because it enables the property to be kept – the income it produces will be used to pay for some of the care, but the value of the house will (hopefully) continue to increase.
Does mum have to agree to the DPA or can I go ahead on her behalf?
A requirement for entering into a Deferred Payment Agreement is that the homeowner must have mental capacity to sign the agreement themselves. If they do not have mental capacity, then only a legal representative such an Attorney (under an Enduring or Lasting Power of Attorney) has authority to do so in their place.
Unfortunately, if the person who has moved into a care home no longer has mental capacity, cannot manage their financial affairs, and has not appointed an Attorney then it will be necessary for a Deputy to be appointed by the Court of Protection. Currently, applications to be appointed as a Deputy are taking 10 to 12 months. It is therefore really important that the correct paperwork is in place before the person requiring care loses mental capacity.
In this scenario, our client does not have mental capacity and her attorney decides that it is in her best interests to enter into a Deferred Payment Agreement to pay for her care. She has a good relationship with the trustees of the trust, and they have agreed to enter into the Deferred Payment Agreement, subject to a few limitations.
Does the Deferred Payment Agreement cover all the care costs?
The costs charged by local authorities will vary from one local authority to another, however there are limits to what local authorities can charge.
Whilst the DPA is running, interest will be charged on the amounts paid by the local authority for care fees. This interest will continue to accumulate until the debt is paid off.
In this scenario the care costs and interest are still less than the client’s income and increase in value of her home. This means that it is in our client’s best interests to proceed with the DPA.
Here to Help
Deferred Payment Agreements are complicated documents which put obligations on the person who is receiving care, or their Attorney or Deputy. It is therefore advisable to get legal advice, as you would do if you were obtaining a mortgage from a bank, before signing anything. In practice most local authorities will require you to obtain legal advice before they sign the DPA themselves.
Naturally this legal advice will have a cost that varies depending on the complexity of the matter. The fees can be paid from the funds of the person who requires care.
The Older & Vulnerable Client team at Longmores regularly help clients with Deferred Payment Agreements to pay for their care. They can help you if a property is owned by an individual, and if a property is in a trust. Please get in touch with Charles Fraser, Head of the Older & Vulnerable Client team, for advice about paying for care and Deferred Payment Agreements.
You can also read more questions and answers in an article by Victoria Wood about Deferred Payment Agreement and Care Home Fees.
Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.