MY WIFE AND I WANT TO PROTECT OUR CASH FROM GOING ON CARE COSTS. HOW CAN WE DO IT?

In our weekly series, readers can email any question about their finances, to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot Financial Planning and has worked in financial services for 25 years. If you have a question for her, email us at [email protected]

Question: My wife and I are in our mid-seventies and are “comfortably off” for the time being. At present our wills, after gifts to charities, are for the estate to pass to the surviving partner. There is a reasonable chance that that survivor will need social care, and maybe residential care, which will drastically reduce what we can leave for our descendants. We are aware of the ability to vary the will after death, but will that escape the attentions of social care departments? If, on first death an amount is left to our descendants, would that take it out of the eventual social care calculation, and when would possible inheritance on those payments be charged?

Answer: With both you and your wife in your mid-seventies, it is understandable that you are considering the impact of potential social care costs on your estate.

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The average stay in a UK care home is approximately two-and-a-half years (801 days), meaning care costs can accumulate significantly. With residential care home fees averaging around £50,000 per year and nursing home care costing around £65,000 per year, long-term care expenses can quickly erode the estate before it reaches your descendants.

Planning ahead is crucial to ensure financial security for the surviving spouse while preserving as much of the estate as possible. However, any planning around this needs to be very carefully planned to avoid the deprivation of asset rules.

Can a deed of variation help reduce social care costs?

A deed of variation can be used within two years of death to redirect assets from one beneficiary to another. However, local authorities scrutinise these arrangements carefully when assessing care fees.

If a surviving spouse is left with little or no assets due to a deed of variation, social services may view this as deliberate deprivation of assets – meaning they could still consider those assets when calculating eligibility for care funding.

Instead of relying on a post-death variation, structuring your wills now to leave assets directly to your descendants on first death could be a more effective approach.

Assets gifted outright to family members before a surviving spouse requires care would not usually be included in the local authority’s financial assessment for care fees. However, if a gift is made too close to the time care is needed, it could still be challenged under deprivation of assets rules.

One way to achieve this protection while still ensuring financial security for the surviving spouse is through an Immediate Post-Death Interest Trust (IPDIT).

This allows the surviving spouse to benefit from assets – such as receiving investment income or living in the family home – while ensuring the capital ultimately passes to intended beneficiaries. This can safeguard wealth from social care means testing and prevent unintended inheritance complications.

Considering the residence nil rate band (RNRB) and nil rate band

You mentioned that your estate will pass to descendants, though not necessarily children.

The Residence Nil Rate Band (RNRB) is only available when passing a qualifying property to direct descendants (children or grandchildren). If your chosen heirs are nieces, nephews, or more distant relatives, the RNRB will not apply, meaning a larger portion of your estate could be subject to inheritance tax (IHT).

If you want to leave up to £325,000 (the Nil Rate Band) directly to your descendants on first death, this would be free of IHT. However, for anything exceeding this amount, IHT could apply.

If you use a trust structure, tax charges could arise every ten years or when money leaves the trust. If assets are gifted outright, they would be classified as Potentially Exempt Transfers (PETs) and fall outside of your estate after seven years.

Gifting to charity and inheritance tax benefits

Your wills include gifts to charity before the estate passes to the surviving spouse. Gifts to charity are exempt from IHT, and if you leave at least 10 per cent of your estate to charity, the overall IHT rate on the remaining taxable estate is reduced from 40 per cent to 36 per cent

Structuring charitable gifts as a percentage of your estate rather than a fixed amount ensures that if care costs significantly reduce the estate, the proportion given to charity remains balanced, preserving an inheritance for your beneficiaries.

What about other assets? Bonds and cash considerations

If you are looking to protect cash assets from social care assessments, some financial products are treated differently:

• Life assurance bonds are not typically included in local authority means testing, whereas redemption bonds (investment bonds with a cash-in value) are included with other capital assets. But even with life assurance bonds you need to be careful of the deprivation of assets rules.
• Wealth held in an ISAs will also be used for any means testing.
• If most of your wealth is held in cash, placing it into an asset protection trust may be worth considering, but this should be done well in advance of any care needs to avoid deprivation of assets concerns. An asset protection trust is a legal arrangement that allows assets to be held and managed on behalf of beneficiaries, shielding them from potential means testing or claims from creditors. However, these are not completely foolproof so getting proper legal advice is critical.

The risk of remarriage and inheritance changes

It is also worth noting that marriage after death (comically referred to as MAD) provisions could have significant implications if the surviving spouse remarries. If they do, their new spouse may have a legal claim to part of their estate, either through intestacy rules (if no new will is made) or inheritance claims.

This could mean that assets originally intended for descendants may end up with the new spouse or their family instead.

Again, an IPDIT is an effective way to mitigate this risk, as it ensures the surviving spouse retains financial security while preventing assets from being redirected through remarriage. Proper estate planning can reduce the risk of wealth passing outside the family line unintentionally.

Navigating social care costs, inheritance tax, and estate planning is complex. The best strategy depends on the mix of assets you hold, your intentions for gifting, and potential care needs. Structuring your estate to protect assets while ensuring financial security for the surviving spouse is a delicate balance.

2025-03-21T06:52:34Z