Deliberate Asset Deprivation?

It sounds like a game show and I am sure the term has got your attention, although for some it is not amusing.

I have been studying the Chartered Insurance Institutes (CII) text for long term care, sometimes referred to as CF8 and passed this test recently. This considers the principals of why this topic should be considered, the conflicts that may arise from other financial planning issues, such as inheritance tax planning (IHT), and some of the solutions that may be considered on their own or in combination with a few arrangements. All very interesting and thought provoking, creating a lot of opportunity to prepare and care for those needing this type of advice and help.

As you can guess, the costs of long term care can be significant and the provision provided by the state once an individual’s assets have been eroded can be low. It may also reduce the choices available to you. Provision from the state will only start after an individual’s assets fall below a current level if £23,250 (2011/2012). And yes, your house value does count towards this (although it may be disregarded in the first 12 weeks of care).

It is this threshold that may encourage some to consider gifting away assets to a level where the cost of care will be met by the state, rather than at the cost of the family. As you can guess, any assessment for care costs will take this into account.

If a gift from the individual’s estate is made within 6 months of the need for care, the gift is likely to be disregarded and added back into the assets of the individual for the assessment. Gifts made prior to this 6 month period may also be included if there was no obvious purpose to the gift being made. Inheritance tax planning may be a fair reason, but the gift away may be challenged if it is believed that the gift was made as a deliberate asset deprivation strategy.

There are a few example cases to reference these challenges and the way gifts (in the specific situations) were treated in each case and these are listed here:

R v. N and E Devon ex parte Coughlan (1999)

Beeson v. Dorset County Council (2001)

Grogan v. Bexley NHS Care Trust (2006)
As you can see from the content of this blog, each case is different and each client and there requirements are different. Therefore, this article should not be seen as individual advice.

As always, I would recommend that you seek independent financial advice (IFA) for your circumstances and requirements.

Keith Churchouse FPFS
ISO 22222 Certified Financial Planner
Chartered Financial Planner

Churchouse Financial Planning Limited, Guildford, Surrey
Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority