Do we need a General Anti Abuse rule for care costs as well as tax?
Sam Dunn at the Mail on Sunday posted an interesting commentary on 18 October 2013 –http://dailym.ai/1cbnw5X – on the risks of embarking on the use of asset protection schemes to minimise the cost of care for elderly people.
Over several years of helping law firms with technical matters I have seen different asset protection schemes mostly sold to people worried about the costs of care. Some might work but the costs and inappropriateness in many cases outweigh any possible advantage in my opinion.
Complexity and nonsense
I have examined two recently where the documentation did not work post Pre Owned Assets tax and the tax problems of unwinding them were difficult. The fact that in one case the clients did not own the legal title to their property nor had ultimate control over its transfer was sufficient to make them ill when they realised third parties held all the cards and not their family. In the other case the clients happily ignored what they had done and mortgaged their property without remembering to tell their mortgagee about the arrangements. The documents created were nonsense and the draftsman, according to the relevant ‘regulatory’ body, had closed his business and moved to Spain!
The legal fees and uncertainty in pursuing those who may be unregulated or missing discourage clients from taking any action.
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Is everyone doing it?
In a lecture I gave as long ago as 1996 I was told by a local authority solicitor that all solicitors in his department owned their parents’ homes! We all know the costs of care frighten families and as a result common sense flies out of the window. There are situations which call for action to be taken during lifetime but I am in agreement with James Kessler QC on this that the safest form of asset protection trust for families is the one contained in the Will of the first spouse to die.
I also agree with the comments of Clive Barwell TEP FCSI CFP on the Solicitors for the Elderly Linked in Group discussion on this topic that this whole area is both a problem for the state to adequately fund appropriate care and for the family to cap the cost of their contribution to said care. This results in people sometimes taking extreme and foolish steps to avoid care fees, which is no different is it really to engaging in abusive tax schemes? Both reduce revenue for local or national government. At the heart of this are elderly people who need to be cared for with love.
What has been done to warn the public?
The Law Society Private Client Section did engage with North East Trading Standards to publicise the shortcomings of some of the asset protection schemes and did get quite a bit of publicity. I did encourage the Law Society to include trusts in the regulatory framework arguments for the regulation of Will writing and estate administration but as everyone will know these services remain unregulated.
Stephen Mayson has recently suggested that all legal services should be regulated (http://stephenmayson.com/2013/10/14/restoring-a-future-for-law/#!) and I have to say I am of that view but with the level of regulation modified to reduce some of the unnecessary red tape.
The article in the Mail on Sunday does flag up to its readers the risks of embarking on schemes of this sort and also refers to the guidelines published by the charity Age UK to help people understand the problems.
Until we can achieve change, what should we do?
Even if we could encourage the Government to act to prevent abusive schemes in relation to care fees avoidance and regulate the provision of all legal services appropriately all this will take many years to change. In the meanwhile legal practitioners must be robust in giving advice to clients; realistic in managing unrealistic choices made by clients and learn that clients are inevitably led by those ‘in the know’ including legal practitioners ourselves so we must remain objective and fair in the face of the strength of wishes to protect assets ‘by any means’.