Beating the means test

When we say long term care (LTC) most advisers tend to think of pre-funded LTC insurance or immediate needs annuities. However, with the imminent arrival of regulation, an adviser operating in this field must ensure their knowledge goes beyond products.

LTC was introduced in the UK with the Community Care Act which was passed in 1994. With it came formal means testing so those requiring care can seek State contributions towards the cost. The State carries out a means test and, at present, if the person requiring care is assessed as owning assets in excess of £18,500 ' a marker which is expected to rise to £19,000 within the next year ' then they will qualify, as some local authorities have put it, for a 0% contribution towards the cost of care.

An ineffective test

When advising clients on the issue of LTC it is important to bear in mind that some may be able to avoid the means test altogether. The following case laws illustrate ways in which the means test can be rendered ineffective.

In October 2001, Westminster council introduced the Registered Nursing Care Contribution (RNCC), a tax-free weekly benefit paid to those in nursing homes who have a nursing care need. Clients are assessed according to the intensity or frequency of care needed and are allocated funding of £35, £70 or £110 a week as a result.

While most advisers are aware of the RNCC, few know of the 'continuing care' loophole which now exists as a result of Pamela Coughlan's victory in the Court of Appeal in 1999. Coughlan suffered a serious road traffic accident and, as a result, was left tetraplegic and in need of artificial feeding, a catheter and tracheostomy care.

The Court of Appeal judgement established a definite dividing line between health care and social care. Where a patient's primary need for accommodation is a health need then the patient's care is the responsibility of the NHS, rather than the local authority.

The Coughlan case established that if the person receiving care has a primary nursing need, there is a case for requesting the whole of the nursing home placement should be funded by the NHS, rather than the local authority. The advantage of this is that the local authority has the power to apply the means test while the NHS does not, so rather than the client being faced with a bill for care, the costs instead become the responsibility of the Health Authority.

It is interesting to note the definitions of continuing nursing care and band three of the RNCC are very similar and it is therefore worth suggesting clients who are receiving band three of the RNCC, should also be requesting continuing care funding.

Property values

The value of the client's property is often the deciding factor in a means test. If property can be excluded from the test, clients whose other assets fall within the boundaries will receive State funding towards their care.

This loophole is named after the long and involved CAO vs Palfrey case from 1995. Where an interest in a property is beneficially shared between relatives, the value of the client's share of the property will greatly depend on whether there is a market for their share of that property. If it is unlikely anybody would buy their share, then the open market value must be assessed as zero.

The most common situation in which this could arise is where a husband and wife own a property under a Tenants in Common agreement. The husband dies before his wife and leaves his share of the property to the children. His wife later needs care and, upon investigating the value of the property the local authority would, if a buyer could not be found for the half-share in the property, be forced to assume a nil valuation.

This is illustrated in the following case study. Bob and Valerie Jones owned their property under a Tenants in Common agreement. Five years ago, Bob died from a heart attack and left his half of the property to their son, Richard. Recently Valerie started to suffer the onset of dementia and soon after it was decided it would be best for her to receive care in a residential home.

The means test concluded that Valerie owned £8,700 in cash and a half share in a property worth £150,000, in other words £75,000. After taking advice Richard argued with the local authority that his mother's share of the property could not be included in the means test as it was unlikely they would find somebody who would buy a house that Richard already owned half of.

Eventually, after some protracted correspondence the local authority agreed and funded Valerie's care.

Information on when the property can be disregarded is included in the official Charging for Residential Accommodation Guide which is, in effect, the bible for both LTC advisers and local authorities alike. While most local authorities are very reasonable some may try to bend the rules or occasionally forget that they exist at all, so it is worth finding out when the value of a property may officially be disregarded.

There will be many circumstances where the following examples either occur or can be arranged:

• If the stay in residential care is likely to be temporary.

• If the spouse still lives in the property.

• If a relative still lives in the property who is aged 60 or over; is aged under 16; or is incapacitated.

It is interesting to note that clients will probably be assessed as being temporary or permanent residents at their medical assessment. If it could be argued that the client's stay is quite likely to be a temporary one then the property would have to be disregarded. A temporary stay may mean anything up to 52 weeks, but a longer period would be assessed as being permanent.

Let us look at this case study. Alan and Sue Clemence, aged 64 and 62 respectively, were living with Sue's mother, Bernice, in her home and had been doing so since Bernice started suffering severe dementia four years ago. The dementia had induced violent episodes in Bernice that became progressively worse and more frequent.

Alan and Sue wished to have Bernice looked after in a care home for the past couple of years, but were convinced the local authority would take into account the value of Bernice's home and force Alan and Sue to move out.

When they sought advice they found out the value of the property would not be taken into account as Alan and Sue would be classed as relatives aged over 60.

As Bernice's other assets only came to a little over £10,000 the local authority arranged to pay for her to stay in a care home.

It is worth noting that even if a legal disregard had not existed and Bernice had been forced to pay for her own care, the local authority would not have had the power to force a sale. Instead a charge would most likely have been applied to the property and the local authority would then have recouped its debt when the property was eventually sold.

Gifting assets

An option which is often discussed but rarely acted upon is to try to reduce the viewable size of a client's assets so that they fall inside the means test should they need care later on. The most common example is to gift property to one's children. This can be a viable option, but as ever, the disadvantages as well as the advantages must be considered.

Chief among the disadvantages are the Notional Capital Rules. These draconian rules allow the local authority to question the motivation behind the gift. Under present legislation they only need assume that one of your motivations was to avoid the means test.

So whereas the client, when questioned, may say the gift was made for natural love and affection of their children the local authority may say, we accept that but feel you also made the gift with the intention of beating the means test. In effect, the local authority is able to act as judge and jury in its own cause and there is no right of appeal other than through the courts.

Many clients are under the misapprehension that the local authority can only look at gifts made in the last seven years. This is in fact untrue. A recent test case, Yule vs South Lanarkshire County Council, established that local authorities can look back as far as they like if they suspect foul play.

The problem for advisers is that different local authorities treat gifting in different ways. Some are fairly relaxed about the matter, and if the gifting occurred at a time when care was not reasonably foreseeable they will not question the motivation. Other local authorities take a much more aggressive stance and actively seek reasons to avoid paying for care.

Therefore while gifting can be an option it must be understood that it is never a definite solution to the problem.

While some of these courses of action may be suitable for certain clients, it goes without saying that planning to beat the means test should never be viewed in isolation. In this area of advice above any other there is a need to make clients aware of the panoply of options that face them together with the advantages, disadvantages, risks and costs that go with each.

Owain Wright is head of The Care Funding Bureau