When Might a Trust Help Protect Against Care Home Fees?
8 minute read
The wrong advice on trusts can be costly—here’s how to separate fact from fiction.
Table of Contents
Introduction: Trusts and Care Fees: Promise, Pitfalls, and Plain Facts
Trusts are among the most widely discussed tools in care home fee planning, yet also among the most misunderstood. Barely a week goes by without a family somewhere in England or Wales being approached by a company promising that, for a fee, they can place their assets into a trust that will shield everything from the local authority. In some cases, those promises are made with confidence and authority. In most cases, they are either misleading or simply wrong.
That said, it would be equally misleading to suggest that trusts have no role to play in care planning at all. In the right circumstances, implemented at the right time, and as part of a properly considered estate plan, certain types of trust can offer genuine and meaningful protection. The key is understanding which types of trust may help, which ones will not, and why the difference matters.
This post aims to give you a clear and honest picture. It does not set out to sell you a trust product. It sets out to help you understand how the rules work, so that any decisions you make are properly informed and legally sound.
Not all trusts protect against care home fees. Some may even make things worse. Read on to understand which trust arrangements may genuinely help, and which ones to approach with caution.
Can Trusts Really Protect Assets from Care Fees?
The short answer is: sometimes, in certain limited circumstances, and only if the right type of trust is used at the right time and for the right reasons.
To understand why, it helps to think about what a trust actually is and how the care home fee means test approaches it.
What Is a Trust?
A trust is a legal arrangement under which one or more people, known as trustees, hold assets for the benefit of one or more other people, known as beneficiaries. The trustees own the assets in a legal sense, but they hold them not for their own benefit, but on behalf of the beneficiaries, in accordance with the terms of the trust.
The key question for care home fee purposes is whether the assets held in a trust can properly be said to belong to the person being assessed. If the trust is structured so that the person has no meaningful access to the trust fund, no right to demand its assets, and no power to control how it is used, there is a reasonable argument that those assets are genuinely outside their estate. If, on the other hand, the person has significant control over the trust, or the trustees are simply rubber-stamping whatever the person wants, the trust may be treated as a sham and the assets may be included in the assessment anyway.
How Does the Local Authority Approach Trust Assets?
When a local authority carries out a financial assessment, it is required to consider whether a person has a beneficial interest in a trust. If the person is a beneficiary of a trust and has the right to receive income or capital from it, the value of that interest may be included in the assessment.
The Care and Support Statutory Guidance makes clear that the local authority should look at the substance of the arrangement, not just its legal form. A trust that exists on paper but that, in practice, gives the person full access to and control over the assets will carry very little weight. The authority is also entitled to apply the deprivation of assets rules to assets transferred into a trust if it concludes that a significant purpose of the transfer was to avoid care charges.
This is the landscape within which any trust-based planning must be considered. It is not a landscape that is hostile to trusts as a concept. But it is one that requires careful navigation, honest advice, and proper legal drafting.
| A TRUST MAY BE OUTSIDE THE MEANS TEST WHEN: - | A TRUST MAY BE INCLUDED IN THE MEANS TEST WHEN: - |
|---|---|
| It does not provide any right to demand assets | It grants a right to income or capital |
| The Trustees have complete discretion | Beneficiaries have effective control over the trust |
| It has not been created to avoid care charges | Trustees must act on a beneficiary's instructions |
| It was created long before the need for care became foreseeable | It was created in anticipation of the need for care |
Why Discretionary Trusts Don't Automatically Shield Assets
Discretionary trusts are one of the most commonly marketed products in the care home fee planning industry. The pitch is straightforward: place your assets into a discretionary trust, and because the trustees have discretion over whether to pay anything to you as a beneficiary, you have no fixed entitlement to the trust fund, so the local authority cannot count it.
This argument has a surface plausibility, but it does not survive close scrutiny in most cases.
How a Discretionary Trust Works
Under a discretionary trust, the trustees have complete discretion over whether and how to distribute income and capital to the beneficiaries. No individual beneficiary has a right to demand a particular payment. In theory, this means that no single beneficiary has a quantifiable beneficial interest that could be included in a financial assessment.
Why the Local Authority Can Still Intervene
The difficulty is threefold. First, if a person transfers their assets into a discretionary trust and remains a potential beneficiary, the local authority may apply the deprivation of assets rules to the transfer itself. The question is whether, at the time of the transfer, avoiding care charges was a significant purpose. If the trust was established at a time when the person was already elderly, in poor health, or had any reason to anticipate needing care, that argument becomes very difficult to resist.
Second, where a person is a discretionary beneficiary of a trust, and the trustees exercise their discretion in that person’s favour, the payments received will be treated as income and taken into account in the assessment. The discretion does not make the payments invisible; it simply affects when and whether they arise.
Third, and perhaps most significantly, if the person who created the trust also controls it, whether as a trustee or through another mechanism, the local authority may treat the trust as a sham. If the reality is that the assets are still effectively at the person being assessed’s disposal, the legal form of the trust will not protect them.
The Marketing of Discretionary Trusts: A Word of Caution
There are a number of companies operating in England and Wales that aggressively market trust products, including discretionary trusts, as a reliable way to protect assets from care home fees. These products are sometimes expensive to set up and may involve ongoing management fees. The protection they offer is often overstated, and in some cases, families have found themselves in a worse position than if they had done nothing.
If you are approached about a trust product of this kind, it is strongly advisable to seek independent legal advice before committing to anything. A solicitor with experience in this area will be able to give you an honest assessment of whether the arrangement is likely to achieve its stated purpose.
Life Interest Trusts and Care Planning
Of all the trust types relevant to care home fee planning, the life interest trust is the one that has the most solid legal foundation, the greatest practical utility, and the clearest connection to proper will-drafting practice.
What Is a Life Interest Trust?
A life interest trust, also called a protective property trust or property protection trust, is a trust created in a will. When the first member of a couple dies, instead of their share of the family home passing outright to the surviving spouse, it passes into the trust. The surviving spouse has a right to live in the property for the rest of their life. They cannot be required to leave. But they do not own the deceased’s share of the property outright.
The people who will ultimately inherit the deceased’s share, usually the couple’s children, are known as the remainder beneficiaries. They have a protected interest in the trust fund, which will eventually pass to them when the life interest comes to an end.
Why a Life Interest Trust Can Help with Care Fees
Because the deceased’s share of the property is held in the trust rather than passing outright to the survivor, it does not form part of the survivor’s estate. When the survivor later needs care, and the local authority carries out its financial assessment, the trust’s share of the property is not owned by the survivor and should not, in the ordinary course of events, be included in the means test.
The survivor’s own share of the property remains in their sole name and may still be assessable when they leave the property to enter care. But the deceased’s share, properly held in trust, has a strong argument for being outside the scope of the assessment. In practical terms, for many couples, this means approximately half the value of the family home may be protected.
The Conditions That Make a Life Interest Trust Effective
A life interest trust will only achieve its intended purpose if certain conditions are met. First, and most fundamentally, the couple must hold the property as tenants in common rather than as joint tenants. If the property is held as a joint tenancy, the right of survivorship means that the property passes automatically to the survivor upon the first death, regardless of the will. The trust provision is simply overridden. This is why severing the joint tenancy is an essential first step.
Second, the trust must be properly drafted by a qualified solicitor. A poorly constructed trust, or one that gives the surviving spouse too much control over the trust assets, risks being treated as ineffective or as a sham.
Third, and critically, the planning should be put in place at a time when care is not reasonably foreseeable. As with all aspects of care fee planning, the closer the arrangement is to the time at which a care need arises, the more vulnerable it is to challenge under the deprivation of assets rules.
What a Life Interest Trust Cannot Do
It is important to be realistic. A life-interest trust created in a will cannot protect the survivor’s share of the property. It cannot protect other assets held in the survivor’s sole name. And it is not a complete solution to the care fee problem in every case. It is one component of a broader planning strategy, and it works best when combined with other steps, including early legal and financial advice and, where appropriate, a Lasting Power of Attorney.
Example: Sarah and David own their home, valued at £500,000, equally as tenants in common. David dies, leaving his 50% share in a life interest trust for Sarah. Sarah continues to live in the home. When Sarah later needs care, only her 50% share may be included in the means test. David’s 50% share, held in trust, may be protected for their children.
The Limits of Asset Protection Trusts
Asset protection trusts are marketed under various names, including family protection trusts and legacy protection trusts. They are typically “inter vivos trusts”, meaning trusts set up during a person’s lifetime rather than through a will, and they are often promoted as a comprehensive solution to care home fees, inheritance tax, and other estate planning concerns.
What Promoters Claim
The typical claim made for an asset protection trust is that, by transferring your assets into the trust during your lifetime, you effectively remove them from your estate. Because you no longer own the assets, they cannot be assessed. The trust will look after the assets for your family, and you may have some limited access to them during your lifetime through the trustee’s discretion.
Why These Claims Require Very Careful Scrutiny
There are several serious problems with this picture.
The first is the “deprivation of assets” risk. If you transfer a significant asset, such as your home or a substantial sum of money, into a trust during your lifetime, and you later need care, the local authority will ask why you made that transfer. If it concludes that a significant purpose was to avoid care charges, it will apply the deprivation rules and treat the asset as still part of your estate for assessment purposes. The fact that a trust holds the assets rather than another person makes very little difference to this analysis.
The second is the question of access. Many asset protection trust products are structured so that the settlor, the person who created the trust, retains some access to the trust fund through the trustee’s discretion. As we have already noted, where the settlor retains effective control or access, the trust is unlikely to provide the protection that is claimed.
The third is the cost. Many of these products are expensive to establish, often costing several thousand pounds, and may involve ongoing management fees. The people selling them are not always legally qualified, and in some cases, they have a financial incentive to sell the most expensive product rather than the one that is most appropriate.
The fourth is the question of regulation. Selling a Trust product to avoid care home fees is an activity that sits in a complex regulatory space. Not all companies offering these products are authorised by the Financial Conduct Authority or regulated by the Solicitors Regulation Authority. Families who invest in these products sometimes find they have paid significant sums for an arrangement that either does not work as described or actively worsens their position.
If you are approached by a company offering to place your assets into a trust to protect them from care home fees, always seek independent legal advice before signing anything or paying any money. Not all trust products do what they claim.
Offshore Trusts and Care Fee Planning: Reality Versus Myth
For completeness, it is worth briefly addressing the question of offshore trusts. This is an area where the gap between marketing promises and legal reality is particularly wide.
What Some Promoters Claim
Some companies suggest that placing assets into a trust established in an offshore jurisdiction, such as Jersey, the Isle of Man, or a territory outside the United Kingdom, will place those assets beyond the reach of a local authority assessment. The argument is that because the trust is not governed by English law, the local authority has no power over it.
Why This Does Not Work in the Way Claimed
This argument fundamentally misunderstands how the care home fee means test operates. The local authority is not enforcing a legal claim against the trust assets directly. It involves assessing the individual’s financial position and determining how much they should contribute. In making that assessment, it is entitled to look at any assets over which the individual has any form of beneficial interest, including assets held in an offshore trust.
If a person is a beneficiary of an offshore trust, the value of their beneficial interest may be included in the assessment. If the trust was created as part of a deliberate attempt to avoid care charges, the deprivation of assets rules apply just as they would to an onshore arrangement. The offshore nature of the trust does not create any additional protection under the Care Act 2014.
Furthermore, offshore trust arrangements can be complex, expensive to administer, and may have tax implications that are entirely separate from the care fee question. They are not appropriate tools for care home fee planning for the vast majority of people in England and Wales.
If you encounter any suggestion that an offshore trust will protect your assets from care home fees, treat it with considerable caution and seek independent legal advice before proceeding.
Conclusion: Why Proper Will-Drafting Remains the Most Solid Foundation
Having considered the range of trust-based approaches that are marketed as solutions to the care home fee problem, a clear picture emerges. The most reliable, legally sound, and accessible trust arrangement available to most couples is a life-interest trust created through a properly drafted will, in conjunction with severing the joint tenancy.
This approach does not involve transferring assets into a trust during your lifetime. It does not require you to give up control of your assets or your home while you are alive. It does not carry the risks associated with asset protection trust products. And when implemented at the right time, as part of a properly considered estate plan, it is on strong legal ground.
It is not a complete answer to the care fee problem. No single step is. But it is an important and accessible component of a broader strategy that includes early financial planning, a Lasting Power of Attorney, and, where appropriate, specialist advice on other products such as immediate needs annuities.
The starting point for most couples should be a review of how they currently own their property and whether their existing wills reflect their intentions and circumstances. If neither of those questions has been considered recently, now is a good time to address them.
Our team would be glad to talk through the options available to you and to help you put a will in place that is properly drafted, legally sound, and tailored to your circumstances.
Read our complete guide to protecting your home from care home fees.
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Frequently Asked Questions
Can a trust protect assets from care home fees?
In certain limited circumstances, yes. A life interest trust created through a properly drafted will can help protect the deceased spouse’s share of the family home from being included in the surviving spouse’s care home fee means test. However, trusts are not an automatic or guaranteed solution. The type of trust, the timing of its creation, and the circumstances of its creation all affect whether it will be effective. Many trust products marketed as care fee protection do not work as claimed.
What is a life interest trust, and how does it help with care home fees?
A life-interest trust is a trust created in a will. When the first member of a couple dies, their share of the family home passes into the trust rather than outright to the surviving spouse. The survivor has the right to live in the property for life, but does not own the deceased’s share outright. Because that share is held in trust and not owned by the survivor, it may be outside the scope of the care home fee means test when the survivor later needs care. The arrangement requires the joint tenancy to have been severed beforehand.
Do discretionary trusts protect assets from care home fees?
Not reliably. If assets are transferred into a discretionary trust and the person is or remains one of the potential beneficiaries, the local authority may apply the deprivation of assets rules to the transfer. Where the person retains effective control over the trust, the local authority may treat it as a sham and include the assets in the assessment anyway. Any payments made from the trust to the person will also be treated as income in the assessment. Discretionary trusts should not be relied upon as a care fee planning solution without specialist legal advice.
What is an asset protection trust?
An asset protection trust is a trust established during a person’s lifetime, into which they transfer assets with the intention of removing them from their estate. They are marketed under various names, including family protection trusts and legacy protection trusts. In the context of care home fees, these products often do not deliver the protection they promise. If the local authority concludes that a significant purpose of the transfer was to avoid care charges, it can apply the deprivation of assets rules and treat the assets as still belonging to the person being assessed.
Do offshore trusts protect assets from care home fees in England and Wales?
No. The care home fee means test is not a legal claim against trust assets but an assessment of the individual’s financial position, including any beneficial interest they hold in trust assets. A local authority can include a beneficial interest in an offshore trust within the means test in the same way it would for an onshore trust. The offshore nature of the arrangement does not provide any additional protection and may create additional tax complications. Offshore trust arrangements are not appropriate tools for care fee planning for the vast majority of people in England and Wales.
What is the deprivation of assets rule, and how does it affect trusts?
The deprivation of assets rule allows a local authority to treat a person as still owning assets they have disposed of if it concludes that a significant purpose of the disposal was to avoid care charges. This rule applies to transfers into trusts in the same way it applies to direct gifts. If a person transfers their home or savings into a trust at a time when care was reasonably foreseeable, the local authority can add the value back into the financial assessment as notional capital.
When is a trust most likely to be effective for care fee planning?
A trust is most likely to be effective when it is created at the right time, for genuine reasons unconnected to an imminent care need, and when the person creating it has no meaningful access to or control over the trust fund. In practice, the most defensible and accessible trust arrangement for most couples is a life interest trust created within a properly drafted will, combined with severing the joint tenancy. This should be put in place while both parties are in good health and care is not reasonably foreseeable.
What should I look out for when considering a trust product for care fee planning?
Be cautious of any company that guarantees a trust will protect your assets from care home fees. Check whether the company is regulated by the Solicitors Regulation Authority or the Financial Conduct Authority. Be wary of high upfront fees and ongoing management charges. Seek independent legal advice before committing to any arrangement. A solicitor with genuine expertise in this area will give you an honest assessment of what is and is not achievable, without any financial incentive to sell you a particular product.
Is it worth getting a will with a life interest trust if I am worried about care home fees?
For couples who own their home together, a will that creates a life-interest trust is one of the most practical and legally sound options. It does not involve giving away assets during your lifetime; it preserves the surviving spouse’s right to live in the property; and, when implemented at the right time with proper legal advice, it has a strong legal foundation. It cannot guarantee complete protection, but it may protect a significant portion of the family home from the surviving spouse’s care fee assessment. It should be considered as part of a broader estate planning review.
Do I need to sever the joint tenancy before making a life interest trust will?
Yes. If you hold your property as joint tenants, the right of survivorship means the property passes automatically to the surviving spouse on the first death, regardless of what the will says. The life interest trust provision in the will would have no effect. Severing the joint tenancy, so that each person holds a defined share that can be disposed of by will, is an essential prerequisite for a life interest trust will to work as intended.
Can a trust protect my home if I am already in a care home?
In most cases, no. By the time a person has already moved into a care home, it is almost certainly too late to create a trust arrangement that will withstand scrutiny under the deprivation of assets rules. The local authority will have strong grounds to conclude that any trust created at that stage had the significant purpose of avoiding care charges. Planning of this kind is most effective when put in place well in advance of any care need arising, while both parties are in good health.
Disclaimer
This article is intended as general information only and does not constitute legal advice. The information refers to the law of England and Wales. Tax thresholds and legal rules are correct at the time of writing but are subject to change. We recommend that you seek professional advice regarding your own circumstances.
Bio
This article was written by Stephen Rhodes. Stephen was called to the Bar of England and Wales in 1999 and brings over 25 years of in-house experience working with solicitor firms across the Manchester area, with a specialism in Wills and Probate. He now focuses exclusively on will drafting, helping his clients ensure their loved ones are taken care of exactly as they would wish.