Paris Steele

Family Protection Trusts – will they protect you from care costs?

Over recent years, there has been something of an irrational fear built up over elderly care home costs. 

To put this into perspective, of the population in Scotland over the age of 65, only about 4% end up in elderly care. This increases to 15% of the population in Scotland over the age of 85.

These statistics are designed to allow you to take an informed view on the possibility that you might need to go into care in later life.

In recent years, we have seen the promotion of family protection trusts as a means to avoid having to pay care costs. But let’s look at this proposition.

What is a Family Protection Trust?

A family protection trust is a legal device created to hold and administer assets. The usual proposition is that your house is transferred into the trust. That means it is then owned by the trust and not by you. The trustees administer the trust for the benefit of the beneficiaries – usually those who create the trust and their family. A “professional” trustee is also usually appointed.

The charges for creating a trust tend to run into thousands of pounds and there are also ongoing administration fees. In addition, the trust must be registered with HMRC.

What is the local authorities’ view of Family Protection Trusts?

Local authorities calculate care costs on the basis of your income and capital. When you reach a certain threshold you need to either pay for your own care costs or make a contribution. The proponents of family protection trusts claim this removes the house from these calculations. This means the assets are distributed to your family whilst the local authority picks up the care costs.

However, the local authority is perfectly entitled to make enquiries about ownership of the house the individual is living in. If they determine that ownership has been transferred into a family protection trust, they are likely to take the view that this is a deprivation of assets. They then may refuse to fund the cost of care. This leaves the family with a decision to either fund the care through their own resources or reach an agreement with the local authority to take a charge over the house.

It is also important to note that a local authority will not force the sale of the house whilst the individual is alive. They normally take a charge over the property and work with the family after the death of the person who was in care to settle the care cost.

This can happen whether the house had been transferred into a trust or not.

So, despite some proposing that a family protection trust will shield you from care costs, it is unlikely that this will be the case.

There are other options when planning for the future that do not include deprivation of assets that you should explore before considering a family protection trust.

WORDS: EDWARD DANKS