Universal Deferred Payment – Funding Long-Term Care

One of the proposals discussed in the Care Bill for implementation from April 2015 is a ‘Universal Deferred Payment’ arrangement that will enable individuals to defer payment of care costs until their death, by taking a local authority loan which would be secured on their home.  You may or may not already be aware that a number of local authorities already offer deferred payment arrangements, albeit on a discretionary basis.

The new scheme will be open to everyone – regardless of whereabouts in England they live – and so will eliminate the need for anyone to sell their home to pay for care.  While this looks good on paper, there are practicalities that need to be considered. Take the situation where a client who makes a will, leaving the family home to a specific beneficiary with the residue of their estate to other members of the family, subsequently loses capacity and goes into care.

In the normal case, the local authority will not pay care fees where a resident has free cash/investments in excess of the upper capital limit with which to meet the fees and a charge will therefore not be imposed until that cash is reduced.

However, where capacity is lost and access to cash cannot be obtained until a deputy is appointed, the local authority may take the decision to pay the care fees and impose a charge on the property.  A local authority is also able to take a charge in anticipation of a resident incurring a liability (e.g. if the available cash above the threshold looks like it may run out, given the likely length of stay in the home).  Such charges may be imposed without the consent of the homeowner (or their deputy/attorney).

The question is: Does this present a problem?  Answer: Potentially, yes.

Unless specifically freed from charge by an express direction in the will, a testamentary gift of real property must bear the burden of any outstanding charge on it as at the date of death (section 35 Administration of Estates Act 1925).  In these circumstances, this places the full burden of the Care Bill on the beneficiary entitled to the property under the will whereas, otherwise, it would have mainly fallen on the residual estate.  The result is that the ‘house beneficiary’ receives very little if nothing of the estate which is unlikely to have been the intention of the deceased.

The solution is to ensure that, following the introduction of the new social care funding regime from 2015, the draftsman of the will seeks to clarify the individual’s intention when drafting the will that includes a gift of property.  Alternatively, to avoid specific bequests that form a large part of the estate in favour of a broad brush percentage split of the whole estate.  This would ensure a fairer distribution even if care costs do not become an issue as the burden of any inheritance tax will then be attributed equally between the beneficiaries of the estate.

If you need to get in touch with us to arrange an appointment to write your will or lasting power of attorney, or would like to review your will, please call Adam on 02380 879243.