We discuss the regulations and legal ramifications of gifting money and other things, including the act of knowingly depriving someone of their possessions.
Formalization of a property exchange.
As you get older, you may find yourself contemplating the possibility of bequeathing your home or some of your assets to someone else, such as your children, another relative, or a close friend. This decision might be motivated by a variety of factors.
Two typical goals are as follows:
for the purpose of avoiding inheritance tax; for the purpose of lowering the value of your assets and increasing the likelihood that you will be eligible for care funds from the local authorities in later life.
It is essential to have a solid understanding of the stringent regulations governing the donation of property and other assets. During the assessment of your financial ability to pay for care, any assets that you give away as gifts during your lifetime may be taken into consideration.
In the event that you pass away within seven years of giving away all or part of your property, your home will be regarded as a gift, and your heirs may be required to pay inheritance tax on some or all of the value of the property.
Donating your house or other assets in order to save money on care costs
It can be very expensive to plan for care in later life. Any individual whose assets exceed a specific threshold, which may in some instances include the value of their home, will typically be required to pay for some or all of this care out of their own pocket.
It’s conceivable that the majority of people’s homes will be the most valuable item they own. As a result, it is not unheard of for people to contemplate “gifting” their home or other assets to a member of their family or a close friend in order to improve their chances of receiving publicly financed medical care in their later years. For instance, you might believe that if you sell your house and give the proceeds to your children, the value of your assets would go down, hence increasing the likelihood that you will be eligible for care that is paid for by your local government.
However, there are a lot of complicated restrictions that you need to be aware of, and the worth of your property may still be taken into consideration by the local authorities even if you have sold it to someone else. Before transferring the ownership of a property to another person, it is smart to get some professional legal counsel beforehand.
If you make a request for money from the local authority, the council will conduct a financial evaluation to figure out how much of a contribution you should make toward the overall cost of your care. If the authority feels that you purposefully sold a property in order to avoid paying for social care, then it will consider this to be a “deliberate deprivation of assets,” and it will penalise you accordingly.
If this were the case, the value of the property would be factored into the calculation that the council uses to determine whether or not you can afford care. Therefore, you can wind up having to pay for your care, despite the fact that you no longer have a property to serve as a source of funding for these expenses.
When it comes to delivering presents to members of one’s own family or circle of acquaintances, one must adhere to a number of stringent regulations. If you apply to the local government for financial assistance with the expense of care and give away significant quantities of money or precious goods, these could be recognised as part of your overall assets.
Donating your land or other assets could have an impact on the amount of inheritance tax (IHT) that your estate is required to pay after your death.
Learn more about the ins and outs of inheritance taxes and gift giving by reading on.
What exactly is meant by the term “deliberate deprivation of assets”?
Not only the assets that are owned at the present time but also those that were owned in the past will be taken into consideration during a financial evaluation for care that is carried out by a local authority.
The term “deliberate deprivation of assets” refers to the situation in which a local authority determines that a person has intentionally divested themselves of assets in order to improve their chances of receiving financing for social care services.
This could involve giving assets away (gifting them), or it could involve taking another course of action, such as selling an item at a price that is lower than its true market value. For instance, there have been situations in which individuals have “sold” their home to a close relative by paying only a small sum, such as ten pounds, in order to be able to legally transfer title of the property. If avoiding the costs of care is deemed to be a substantial motivation for the sale, then it is possible that the sale was done with the intention of intentionally depriving the seller of assets.
The following are some situations that come to mind when I think of the term “intentional deprivation.” There may be repercussions for both the individual who is gifting the assets and the person who is receiving them in this scenario.
putting money into a trust or tying it up in some other fashion putting money into a trust by transferring it into the name of someone else gifting property by transferring it into the name of someone else selling an asset, such as a property, to someone for less than its true worth gifting money or expensive items, such as a piece of jewellery that was recently purchased gifting property by transferring it into the name of someone else selling an asset, such as a property, for less than its true worth gift
The local authority will take into consideration the following factors when determining whether or not deprivation was “deliberate.”
When it came time to dispose of assets, did avoiding care costs serve as the primary motivation?
Regarding timing, there is no predetermined time limit; nonetheless, it is doubtful that local authorities will look too far into the past. The most crucial thing that they will look at is the amount of time that passed between the individual realising that they needed care and the time that they got rid of their assets.
Amount: was the gift of a sizeable sum that would have a material impact on your permitted level of investment capital? In order for the local authority to take this course of action, the asset in question will need to have a large market value. If you were to give away a home worth 300,000 pounds, for instance, this would have a considerable impact on your overall capital. On the other hand, gifting someone a ring worth 300 pounds is unlikely to elicit additional scrutiny.
Intention is the deciding factor in everything. When you made the gift, was it possible for you to have a reasonable expectation that you could require medical attention? For instance, if you were ill, were determined to require residential care, and then the following week handed over your property to a relative, that would raise questions about whether or not you were intentionally denying yourself basic necessities.
Is the act of giving a gift synonymous with the wilful disposal of an asset?
No, not every transaction involving the sale of assets constitutes an intentional act of deprivation. It is possible that it has nothing to do with care, particularly if there was no thought given to paying for the cost of care at that point in time.
You should consider leaving large sums of tax-free money to your children or grandkids, both so that you can take pleasure in watching how they use the money and so that you can avoid having to pay inheritance tax.
You might also choose to assist family members who are having difficulty making ends meet or splurge on a well-deserved “trip of a lifetime.”
After you retire, you might consider it a post-retirement treat if you went on an opulent cruise while you were still in good health and had no notion that you might need care at some point in the future.
Consequently, giving away capital can result in some very negative outcomes. Even though the person in question no longer owns the goods in question, their worth can still be factored into the overall evaluation of their financial situation if it is discovered that they have “deliberately deprived” themselves of those assets.
The value of the assets that they formerly possessed is referred to as the “notional capital” of the company. For the purposes of the financial evaluation, a person’s total financial assets can be calculated by adding the value of their notional capital to the value of their remaining assets. In the scenario of transferring ownership of your home, this means that you not only run the risk of having to pay for your own care, but you also run the risk of no longer having a property to use as collateral to pay for it.
Putting one’s possessions into a trust that will last one’s lifetime
When you want to transfer ownership of assets such as money or property to another person while you are still alive but don’t want to do so directly, you can use a lifetime trust instead of handing them over to that person.
If you create a lifelong trust for your assets, those assets will be administered by one or more trustees, and if you continue to live for at least seven years after establishing the trust, those assets will not be considered part of your estate.
It is possible that putting your assets in a trust that lasts your lifetime could assist you in avoiding having to pay for long-term care costs. Nevertheless, the utilisation of a lifetime trust for the aforementioned objective is not normally recommended. There is a considerable possibility that any assets you have moved into a lifetime trust may be construed as an intentional deprivation of assets in the event that you are evaluated for funding from the local authority to cover the cost of your care.
Lifetime trusts can be an efficient way to transfer property to a juvenile or to an individual who need the assistance of trustees in order to properly manage their financial affairs. They can also be an efficient way to manage the inheritance tax burden that is placed on your estate, provided that you receive the appropriate financial guidance.
the ability to recover, as well as your right to appeal.
If the local authority pays for a person’s residential care costs and later determines that the person has “deliberately deprived” themselves of assets, the local authority has the authority to claim care costs from the person to whom the assets were transferred. This occurs when the local authority decides that the person has “deliberately deprived” themselves of assets.
In accordance with the law, the local authorities possess the authority to recover costs by initiating legal action. On the other hand, a local government shouldn’t do this until after it has exhausted all other viable options in an effort to get their money back first.
You have the right to appeal the decision of the council if you believe that it was made in an unreasonable manner, and the decision itself must be reasonable. You need to get in touch with your local authority if you wish to lodge a complaint or contest a decision that has been made.
The possible downsides of giving away money or assets
It is irreversible; there is no turning back now. It is impossible to take back a present once it has been presented to another person.
Loss of financial stability due to the possibility that assets would be required to cover other unanticipated costs in the future. You might prefer to relocate or pay for care to be provided in the comfort of your own home, for example. If you have sold off your assets, you may find that you are short on cash when you need it the most for other obligations.
You will reduce your financial security and the number of options available to you in the future if you sell off assets. This will result in a loss of control over your life.
It’s possible that a person you trust to ‘hold on to’ a valuable asset or to own your property ‘in name only’ and pass money to you at a later date won’t always live up to their half of the bargain. Situations and relationships can evolve over time.
In the event that you become divorced or file for bankruptcy, you might give your residence to another person with the understanding that you can continue to live there. However, if the person who is receiving the gift later gets divorced or declares bankruptcy, it is possible that the house will have to be sold as part of the settlement for the divorce or the bankruptcy. This could result in you having nowhere to live.
Capital Gains Tax: If either you or the recipient of the gift makes a profit from the asset after receiving it as a gift, you may be required to pay capital gains tax on the profit. The situation is typically similar with second houses. For additional information regarding the capital gains tax, please see our handbook.
Seek legal advice
If you are thinking of giving any assets, particularly the transfer of a home, you will need to get the assistance of an attorney to ensure that the process is carried out in the correct manner.
The Solicitors’ Practising Standards Committee of the Law Society has developed comprehensive rules for solicitors on gifts of property and the consequences those donations have for long-term care. Be certain that any lawyer or attorney with whom you communicate is familiar with these standards.
More direct guidance on how to pay for care can be found in the free booklet that we offer titled “Paying for care in later life.” This guide will walk you through the various treatment alternatives, how much money you should expect to spend on each one on average, and how to determine if you are qualified for any type of financial assistance. In addition, if you are responsible for paying for some or all of your own medical treatment, the guide offers a wealth of advice on how to budget effectively in order to afford the associated expenses.
You may get further advice on how to pay for medical treatment by downloading our free guide.
Spending money on care in your later years