20.06.16
Councils losing millions by failing to clamp down on people who gift assets to avoid care home costs
Peter King, Partner at law firm Nockolds, analyses why county councils have not been enforcing deprivation of asset regulations as rigorously as they could be in recent years.
The UK government spends around £10bn on care for the elderly every year. Despite this vast sum of money, local authorities are struggling to provide adequate care and have been permitted to hike council tax for the 2016-17 tax year by 2% to ensure care for the elderly is fully funded.
At the same time, the care home sector is in financial crisis with an estimated one in four homes facing closure. These two issues are inextricably linked because care homes often make little or no profit on beds provided to local authorities in bulk, relying instead on self-funded residents for the majority of their profits. A solution to the mounting cost of providing care for the elderly and the financial crisis faced by the care sector would be to ensure that a higher proportion of care home residents who can afford the fees are self-funded.
There is no denying that care home fees can be financially crippling, particularly as people live longer, and that this is encouraging people to dispose of assets to next of kin to avoid these costs. Many clients consult solicitors in the mistaken belief that gifting assets, such as the family home, prior to going into care is a legitimate means to avoid care home fees.
The Law Society gives detailed guidance to solicitors on the comprehensive advice clients must receive in connection with gifts of this nature, dealing with all the consequences risks and benefits. However, the internet is awash with products and schemes from unregulated providers which promise care home fee avoidance.
There are rules to address the deliberate deprivation of assets, but based on our experience it is difficult to avoid the conclusion that many people divest themselves of property and investments with the intention of avoiding payment for the cost of their care.
Whilst solicitors may follow the Law Society guidance on gifts others may not be so constrained, and it is conceivable that the deliberate deprivation of assets is still taking place and on a large scale, potentially costing councils millions of pounds.
For many years, councils have had it within their powers to recoup care home fees from people who have gifted assets with the express intention of ensuring that their net wealth falls beneath the £23,250 threshold. We submitted Freedom of Information Act requests to the county councils comprising the Home Counties, asking how often they had used their powers against individuals for the deliberate deprivation of assets or income to avoid liability for care home fees. Not all councils responded to the requests in full, but those that did – Buckinghamshire, East Sussex, West Berkshire and Surrey – indicated that they had not enforced the deprivation of assets regulations at all in the last five years.
The Law Society guidance also contains the following observation: There is no foolproof way of avoiding the value of assets being taken into account for means testing. Anti-avoidance measures in the law allow some gifts to be ignored by the authorities, and even set aside by the court. The measures are pursued more vigorously by some authorities than others.
So, why aren’t councils enforcing the regulations as rigorously as they could be, which would clearly benefit taxpayers and the care sector?
We suspect that there are a couple of reasons for non-enforcement. Firstly, spending cuts have put councils in a position where they lack the resources to stay on top of this. Enforcing the deprivation of assets regulations can be costly, even if a dispute does not reach court. In the event that a council is unsuccessful, it will have incurred costs and still have to pay the care home fees.
Secondly, councils may have good reason for not enforcing the regulations. Councils have to prove that the avoidance of care home fees was the express reason for the gift or at least a significant factor for the decision. There are all sorts of reasons why someone might want to gift assets, which are entirely legitimate, and it is proving their intentions which is often challenging.
The government needs to consider whether the regulations could be strengthened to enable councils to use them more effectively. There are four separate regulations which councils can use to tackle deprivation of assets in addition to the powers contained within the Care Act 2014. Section 70 of the 2014 Act which came in to force in April last year, and made the process a little clearer in that councils may recover as a debt the full market value of an asset which has been transferred at an under value, from the individual to whom the asset has been transferred. The added clarity will possibly encourage more councils to exercise their powers, but the previous reticence to do so may well continue.
Further intervention from the government may yet be required and in this respect perhaps the burden of proof should be reversed, so that in the event of a disposal within the proximity of going into care it would be up to the donor and/or recipient to prove that the gift was not made to avoid care home fees, rather than the onus being on the council to prove that was the intention? With the crisis in care home funding likely to intensify as the baby boomers retire, councils need to be properly equipped to ensure that those who can afford to contribute to their own care actually do so, so that resources can be directed at those in genuine need.