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Making gifts of assets

6 October 2011

1 Introduction

1.1 Who should read this practice note

This practice note is for solicitors who advise clients about transferring their assets to family and friends before they die.

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1.2 What is the issue?

Clients may ask about transferring property or investments to their next of kin, family members, or friends in order to mitigate large tax bills after their death, or as a means of providing funding for their future care. Whether they wish to gift assets or offer them at significant undervalue, you must advise your client about the benefits and risks of doing so, and clarify your role and responsibilities in the process.

Some clients may have received advice from non-solicitor legal advice services that included unjustified claims about gifting of assets to avoid the assets being considered for inheritance tax or care fees liability.

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1.3 Professional conduct

The following sections of the SRA Code are relevant to this issue:

  • Chapter 1 on Client Care
  • Chapter 3 on Conflicts

1.4 Status of this practice note

Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.

Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.

For queries or comments on this practice note, contact the Law Society's Practice Advice Service.

1.5 Terminology

Must - A specific requirement in legislation or of a principle, rule, outcome or other mandatory provision in the SRA Handbook. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or the SRA Handbook.

 

Should -

  • Outside of a regulatory context, good practice for most situations in the Law Society's view.
  • In the case of the SRA Handbook, an indicative behaviour or other non-mandatory provision (such as may be set out in notes or guidance).

These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best possible route to meet the needs of your client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.

 

May - A non-exhaustive list of options for meeting your obligations or running your practice. Which option you choose is determined by the profile of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.

SRA Code - SRA Code of Conduct 2011

SRA - Solicitors Regulation Authority

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2. SRA Principles

There are ten mandatory principles which apply to all those the SRA regulates and to all aspects of practice. The principles can be found in the SRA Handbook.

The principles apply to solicitors or managers of authorised bodies who are practising from an office outside the UK. They also apply if you are a lawyer-controlled body practising from an office outside the UK.

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3 Taking on a client

3.1 New clients

Before taking on a new client, you should check whether they retained another solicitor or adviser before you, and find out why they decided to change. If you are concerned, you should ask your client if you can contact their previous adviser so that you can establish all the facts of the case.

You should also satisfy yourself that your client is making the gift freely and has not been unduly influenced, especially where someone else purports to be giving instructions on behalf of the client. If indirect instructions are being given, you should confirm the instructions with the client, ideally in person without anyone else being present.

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3.2 Conflict of interest

You should clarify who you will be acting for and who you will be receiving instructions from. You must consider any possible conflict of interest where you receive instructions from a donee, especially if you already act for the donor. Chapter 3 of the SRA Code indicates when instructions must be refused.

If you are asked to act for both parties, you must make them both aware of the possible conflict of interest, and should advise one of them to take independent advice. You should explain you may be unable to disclose all that you know to each of them. You may also be unable to give advice to one of them which conflicts with the interests of the other. Both parties must give their consent to the arrangement in writing. If you remain in any doubt, you should not act for both parties.

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3.3 Money laundering

There is a risk that clients seeking to transfer assets may be involved in money laundering or fraud. The Law Society's anti-money laundering practice note will help you to spot warning signs and gives information on what to do if, for example, your client attempts a transaction involving criminal property.

When you accept instructions from a client, you enter into a binding contract with them and you are obliged to follow their instructions. However, Outcome 1.3, Chapter 1 on Client Care, SRA Code creates an exception to this. The Outcome requires that when deciding whether to act, or terminate your instructions, you comply with the law and the Code.

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3.4 Professional negligence and file retention

To protect yourself in the event of a subsequent dispute or a professional negligence claim, you must retain evidence of the advice you give your client. Your file notes and correspondence will normally be covered by legal professional privilege or the duty of confidentiality. A court will not usually order discovery of a solicitor's file unless there is prima facie evidence of fraud, but has done so where there are public policy considerations - see Barclays Bank plc v Eustice [1995] 1 WLR 1238. It is possible that a trustee in bankruptcy, or a local authority bringing proceedings under the Insolvency Act 1986, section 423-425, may persuade the court to override privilege.
Read more about file retention generally

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4 Advising your client

Your role is more than just drawing up and registering the necessary deeds and documents to effect the making of a gift. You must ensure that the client fully understands the nature, effect, benefits, risks and foreseeable consequences of making the gift, in order to enable them to form a view as to the wisdom of the proposed transaction.

Assessing your client's understanding of the implications of making the gift may help you to determine whether they have the capacity to make the decision, or whether they are subject to undue influence from family or other beneficiaries.

Since your advice will depend to a large extent on your client's motivations for disposing of their assets, you must first find out:

  • what they are seeking to achieve
  • who they wish to receive the gift
  • what types of assets are involved

You should spend time with your client to enable you to:

  • evaluate their instructions
  • clarify their domestic and financial circumstances
  • establish that they own the assets they wish to dispose of, and
  • assess whether they have the mental capacity to make the gift.

The Mental Capacity Act 2005 (MCA) and MCA code of practice state that your client should be able to understand relevant information, use it to make a decision, and communicate that decision to you. The leading case of Re Beaney (Deceased) [1978] 1 WLR 770 sets out the test of capacity to make a gift, and states that capacity to make a gift will vary depending on the size, nature and circumstances of the gift.

Further, you should stress to your client that your advice is the best possible advice at the time it is given. You should point out that the unexpected can and often does occur and that the best laid plans can go wrong, so donors should always adopt a cautious approach.

In many cases, your client will be the person intending to make the gift, but you may be approached by a next of kin acting on their behalf. In this case, you should confirm your instructions with the client in person, preferably in private, so as to ensure that they are capable of making the decision and that they have not been unduly influenced by the donee or next of kin.

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4.1 Establish your client's objectives and understanding

To enable you to provide relevant advice, you should do both of the following:

  1. ensure that you receive full instructions
  2. ensure that your client fully understands the implications of their proposed transaction.

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4.1.1 Why the client is considering a gift

You should ask why your client has decided to make the gift, as you may be able to suggest more effective ways of achieving the same objective, for example: does your client wish to ensure that a particular person inherits an asset? This objective could be achieved simply by making a will.

Other points to consider could be:

  • Is your client seeking peace of mind by making the gift? Do they think it provides certainty for the future or satisfies a moral obligation?
  • Will the gift affect others who might have expected to eventually inherit a share of the asset?

If the intention in making the gift is to avoid tax, you should ensure that your client is aware of all tax implications, including Inheritance Tax, Capital Gains Tax and Pre-Owned Asset Tax. There are additional considerations if your client retains the benefit of an asset after giving it away. For instance, if the recipient of the gift dies before the donor, the asset may be subject to Inheritance Tax.

If your client is seeking relief from the worry and responsibility of owning an asset, granting a lasting power of attorney to a family member may be a better way of dealing with this issue.

If your client wants to avoid the value of their assets being taken into account for means testing, such as when they foresee the need to pay for long-term care, your advice must deal with the consequences of such an action, including tax implications and the risks in relation to deprivation of assets.

4.1.2 Issues involved in the clients decision

There may be other issues involved in your client's decision which you should be aware of, including where:

  • Your client is infirm or disabled, and an adult child or other relative has given up a paid job or the chance of career advancement to provide full-time live-in care in the expectation of inheriting the home on their death.
  • Your client is no longer able to pay for the upkeep or improvement of their home, and their child or children have been funding these in the expectation of inheriting the property.
  • The home or other asset is a part of a family business which would no longer be viable if the asset were not included. For instance, a farm might not be able to function without the farmhouse.
  • The asset was vested in the name of your client but was funded in whole or in part by their son or daughter.

4.1.3 Nature and extent of the assets

You should request details from your client regarding the nature and extent of the assets being disposed of, and whether your client expects to receive anything in return, including:

  • whether the asset is the family home, or an interest in a property or business
  • whether the gift will include art, antiques, jewellery or investments
  • whether the gift is a one-off or one of a series
  • the extent of the gift in relation to the rest of your client's assets, including assets held on their behalf or in trust by others, and the impact on their standard of living
  • if they are making an outright gift, offering a loan, setting up a trust, or acquiring a share in a business or property owned by the donee
  • whether your client expects to receive anything in return for their gift and, if so, what is the magnitude of their expectation? For instance, they may propose to give their house to a family member and in return remain there for the rest of their life. In this case, you would need to talk to your client about rent, insurance and maintenance of or alterations to the property
  • the age, health and circumstances of the donee, including if they are reliant on means-tested benefits or local authority funded care, noting that a donee may die first or become involved in divorce, civil partnership dissolution or bankruptcy proceedings
  • whether they expect the donee to provide care or financial assistance
  • whether they intend the gift to take effect immediately or later, for example perhaps on your client's death or if they go into a care home
  • whether your client has already made gifts to the donee or others.

A proper assessment of the implications of making a gift of the asset both for your client and the donee is best achieved by listing the benefits and risks, and thinking about other issues such as tax and future care. You should also tell your client that if the gift is made outright, they cannot assume that the asset would be returned to them upon request.

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4.2 Benefits of transferring assets

If your client transfers assets to a family member or carer:

  • There may be savings in relation to Inheritance Tax and administration costs upon the death of the client.
  • The client may avoid the need to sell assets to pay for care fees.
  • The asset may not be taken into account if your client has to undergo means testing for benefits or publicly funded services.
  • Your client may be relieved of the burden of responsibility for the asset.
  • It may reduce delays in processing their estate on their death.
  • There may be savings in both time and expense in applying for a court order from the Court of Protection in the event your client loses mental capacity and there is no relevant power of attorney is in force.

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4.3 Risks in transferring assets

Among the risks involved are the following:

  • The value of the home may still be taken into account for funding long-term care as there are anti-avoidance measures in relation to means-testing. This is set out further at 6.1.2 Means testing.
  • If your client subsequently needs to move into a home but does not have the resources to pay for their care themselves because of the gift, the local authority may only pay for the basic level of care, leaving your client to rely upon the financial support of others to enable them to move into a home of their choice.
  • The donee may not provide the support expected, resulting in suffering for your client - for example, by not topping up care fees, or by moving your client prematurely into residential care home in order to occupy or sell the family home.
  • If the donee dies or runs into financial difficulties and the donor continues to live in the gifted home, your client may be made homeless.
  • The relationship between the donor and donee, since parties can and often do fall into dispute and even become quite hostile to one another.
  • The donee may later put pressure on your client to liquidate the gifted assets.
  • If your client transfers their home, they may be deprived of opportunities to adapt to changing circumstances - for example by downsizing, or releasing equity to pay for adaptations or care at home, so the donor may be left with no option but to move into a care home.
  • The person to whom the assets have been gifted may lose their entitlement to benefits and/or services based on personal means testing.
  • If the arrangement is challenged, there could be additional legal fees.

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4.4 Tax implications

There are many issues arising in relation to tax as a direct result of transferring assets. For example:

  • There may be no Inheritance Tax saving as long as your client receives benefit from the asset - for example, if they continue to live in the home after transferring it to a child.
  • There may be an Inheritance Tax liability if the donee dies before the donor, or if the donor dies within seven years of making the gift.
  • The Capital Gains Tax main residence exemption will be lost unless the donee lives in the property.
  • There may be no automatic uplift to the market value for Capital Gains Tax on the donor's death.
  • Stamp Duty Land Tax and additional administrative burdens may be payable.
  • Under the pre-owned assets rules, your client may be subject to an Income Tax charge after the transfer.

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4.5 Other consequences

As well as the more practical issues, you should ask your client to think about their general approach to their future once they have transferred assets including:

  • What effect making the gift could have on their future standard of living?
  • If a main motivator in gifting assets was to avoid means testing for future care provision, how would your client feel if this situation didn't arise? Does the benefit outweigh the risk?
  • What effect would transferring an asset have on others who might have expected to inherit a share of it?
  • What might happen if relations between your client and the donee deteriorate?

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5 Special considerations

5.1 Joint donors

Where your clients are seeking to make a joint gift, you should consider the position of each donor separately. Where the donors may have children from previous relationships, you should consider their obligations to those children. You must also make your clients aware of any potential conflict of interest between the two of them in terms of your advice.

You must establish whether both donors have capacity to make the gift and whether either donor is exerting undue influence on the other.

Where the gift to a third party is the home in which the couple are living, there will be the same risks as with individuals providing the gift, however if the gift is of a share in the home by one of the donors to a third party, you should fully explore the implications for the potential survivor.

It is common for spouses, civil partners or cohabitees to contemplate a gift of their home to avoid its value being taken into account in relation to means testing for care home fees. You should tell the donors that if only one of them goes into care, there are circumstances in which the value of the share of that donor will not be taken into account, where the other donor remains in the home. However, the value of the resident's home is disregarded in the following circumstances:

  • during a temporary stay
  • if it is occupied by a spouse, civil partner, person living with the resident as a spouse or civil partner or relative who is aged sixty or over or is incapacitated
  • if it is occupied by someone else and the local authority exercises its discretion
  • for the first twelve weeks of a permanent stay in a care home.

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5.1.1 Establish the nature of the donors' relationship

You should ascertain the relationship of the donors because different considerations apply for marriage, civil partnership, cohabitation or living together on a non-sexual basis.

For married couples and civil partners, you should make your clients aware that they benefit from the inheritance tax exemption on the transfer of assets between them both on death and during their lifetime. So a gift of an asset to a third party during their lifetime may not result in any tax saving on the first death of the couple. The survivor's expenses may increase due to living alone at the time as income is reduced because of lost pensions. To ensure that the survivor is left with sufficient assets following the first death, it may be preferable to retain assets, either absolutely or in an interest in possession trust until the death of the survivor. The survivor's estate will then benefit from the transferable nil rate band if it is still in force at that time.

For cohabitees, there is no inheritance tax exemption on gifts between them so a lifetime gift to a third party may appear to have a tax saving advantage. However, you should explore the implications for the survivor. As with a married couple, the survivor may well have increased living expenses or have a fall in income following the first death. It may still be better to choose a gift of the nil rate band to a discretionary trust of which the surviving cohabitant is a beneficiary.

It is not uncommon for joint donors to be living together on a non-sexual basis, for example children and parents, or siblings or for a parent to make a gift of the property to their children.

In these circumstances, you should remember that there is an automatic presumption of undue influence in the making of lifetime gifts where the donor is a child and donee a parent. This will necessitate separate advice for the donor(s) and the donee as a means of rebutting such a presumption.

You should also establish whether the donor(s) have taken into account the needs and expectations of each other and any other children. However unlikely it may appear to be, the consequences of the death of the donee before the donor(s) needs to be considered both from the point of view of inheritance tax and of succession to the property. The donor may be at risk of losing the property.

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5.2 Multiple donees

Often, the gift will be to more than one donee, such as to multiple children, including where joint donors have children from different relationships.

These situations greatly increase the potential problems and risks. For example, the death of a donee before the donor is more likely, as is divorce, financial hardship, bankruptcy or incapacity of one or more of the donees. There is also the possibility that in the future the donees may disagree about issues concerning the donor(s) and the assets.

It is unlikely to be appropriate for one person to act for both the donor(s) and all the donees. Each party is likely to need separate legal representation to ensure their particular interests are considered.

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6 Gifting assets to fund future care

Many clients will be motivated to transfer assets because they fear they will have to sell their home to pay for care and wish to protect their family's inheritance.

To advise your clients properly, you should familiarise yourself with:

  • the eligibility criteria for NHS-funded continuing health care
  • charging and funding arrangements by local authorities for residential and continuing health care
  • when care must be provided free of charge
  • any means testing criteria applied by local authorities which charges for care.

There is no foolproof way of avoiding the value of assets being taken into account for means testing. Anti-avoidance measures in the law allow some gifts to be ignored by the authorities, and even set aside by the court. The measures are subject to periodic change, might apply retrospectively, and are pursued more vigorously by some authorities than others.

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6.1 Local authority care provision

Local authorities are not allowed to take responsibility for a person who is an NHS responsibility, but they must assess anyone who appears to it to be in need of community care services. These include residential accommodation for those who by reason of age, illness or disability are in need of care and attention which is not otherwise available to them, and domiciliary and community-based services enabling people to continue to live in the community. Relevant legislation:

  • National Health Service and Community Care Act 1990, section 47
  • National Assistance Act 1948, section 21
  • National Assistance Act 1948, section 29, including functions under the Chronically Sick and Disabled Persons Act 1970, section 2

On the results of their assessment, they must decide whether there is a need to provide community care services. If that is the case, the person in need of care is likely to be subject to the financial means test.

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6.1.1 Paying for care

If your client can afford to pay for a place in a care home, they can arrange this independently, though they should have a needs assessment to consider all their care options including whether and how much financial assistance would be available from their local authority. The assessment of need for care provision does not depend on the need for funding. Some care homes do not provide accommodation for local authority-funded residents.

Where the local authority pays or contributes to the cost of care:

  • A standard weekly charge is fixed which represents the true economic cost of providing the accommodation, or a weekly charge is agreed for a place in an independent home which should represent the cost of the place to the authority.
  • Residents must generally contribute in accordance with their resources up to the weekly charge, but no one should be required to pay more.
  • The local authority will either pay the full weekly charge to the care home and collect the resident's contribution or, with the agreement of all parties, pay the home net of the person's assessed contribution, with the resident paying this to the care home direct.
  • The contract should state what is included in the charge and what are extras.

If your client wishes to move to a care home which is more expensive than the local authority will pay on the basis of their assessed needs, and if the local authority can show that there are suitable homes with vacancies in the local area, you should note that the cost difference will need to be topped up by a third party such as a family member.

6.1.2 Means testing

For those who cannot afford the standard charge for their care, local authorities will make an assessment of their ability to pay. This is reviewed annually, though a reassessment can be requested at any time.

The assessment applies to both permanent and temporary care, and is based on the means only of the person in need of care: a partner's or spouse's resources are not taken into account, though jointly owned assets may be assessed. The National Assistance (Assessment of Resources) Regulations 1992 (as amended) and the Charging for Residential Accommodation Guide set out how fees are calculated. Half the occupational and private pensions of a resident can be disregarded if they are paid to a non-resident spouse or civil partner.

The basis of assessments for care provision is largely in line with that for income support, but there are some significant differences:

Some capital is disregarded, and everyone is allowed to keep a set level of capital. The level is set each year in the National Assistance (Assessment of Resources and Sums for Personal Requirements) (Amendments) (England) Regulations and the National Assistance (Assessment of Resources and Sums for Personal Requirements) (Amendments) (Wales) Regulations.

Notional capital and notional income rules may apply where the local authority believes there has been deliberate deprivation of assets.

A small amount of income is disregarded if it would have been incorporated into the assessment for the Savings Credit element of Pension Credit. This is to ensure that pensioners who save still see some benefit of this when they are resident in a care home.

The local authority may agree to defer payment by means of a legal charge on the resident's property, so that the resident does not have to sell their home during their lifetime. The resident must contribute to their care fees from available resources, making up any shortfall through the legal charge. Interest starts to accrue 56 days after the resident's death. A deferred payment option will not be provided where the resident's income or capital is assessed as being above the upper capital limit outlined in the National Assistance (Assessment of Resources) Regulation.

All residents retain an allowance for personal expenditure on toiletries, stationery and treats, etc. This is set each year in:

  • the National Assistance (Assessment of Resources and Sums for Personal Requirements) (Amendments) (England) Regulations, and
  • the National Assistance (Assessment of Resources and Sums for Personal Requirements) (Amendments) (Wales) Regulations.

The local authority has discretion to increase the allowance, but it should not be used as top-up towards more expensive accommodation.

Local authorities should offer to carry out a benefits check on residents' behalf, since it is in their interests to ensure that people in care homes are receiving maximum state benefits.

6.1.3 Anti-avoidance measures and deprivation of assets

In most cases, the intention behind making gifts of assets is the most important factor. If a local authority believes that an asset has been given away with the intention of creating or increasing entitlement to means tested benefits, it may decide that the donor has notional capital of equivalent value to that of the asset given away.

Your client will be particularly vulnerable if they are deemed to have notional capital since, although the local authority is obliged to provide care, this does not have to be in a residential home. Moreover, your client may not be entitled to financial assistance towards the fees. The local authority may still be obliged to provide care, but the local authority could seek payment using debt recovery methods, as in the case of Robertson v Fife [2002] UKHL 35.

A local authority financial assessment must follow the needs assessment. There is a question mark regarding whether Robertson v Fife would stand up in England because of the slightly different wording of the legislation, such that the local authority would refuse to provide the care because the notional capital makes it otherwise unavailable (see 'Community Care and the Law' from paragraph 8.91), and as such are arguably under no obligation to provide residential accommodation under s.21 National Assistance Act 1948. However, the person might qualify as a vulnerable adult, regardless of notional capital, where they are in need of such accommodation because they cannot arrange their care or no longer has any resources to fund their care.

If the local authority believed that a significant part of the intention to transfer an asset was to increase entitlement to financial assistance, they could impose a charge on the asset after it had been gifted, or even recover the asset. For a local authority to pursue a claim they would have to show what the donor's intention was at the time of disposal. It may be difficult for the donor or donee to give evidence as to the donor's intentions and if another purpose of the gift cannot be established or indicated, the judge may conclude that it must have been to avoid means testing.

One way to establish the intention is the foreseeability or immediacy of the need for care. Any decision to reject or accept the evidence requires an overall assessment of that evidence by the local authority - see Beeson v Dorset County Council [2002] HRHR 15. If, for example, your client was fit and healthy and could not have foreseen the need for residential care, it would be unreasonable for the local authority to treat the transfer of assets as deliberate deprivation. However, Yule v South Lanarkshire Council [1999] 1 CCLR 546, states that there was no time limit on local authorities when deciding whether a person had deprived themselves of assets for the purposes of avoiding residential care fees.

If a local authority were to pursue a claim for care funding, your client could challenge that decision but would bear the burden of proof that the authority's decision was Wednesbury unreasonable - Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB233). This process could be protracted, involving local authority complaints and ombudsman procedures, and this could be very stressful for your client and expensive if it involves court proceedings.

6.1.4 Enforcement of fees for care

Local authorities can take steps to recover contributions towards care charges, and their assessment of ability to pay may take into account property that has been given away for the purpose of avoiding means testing. Their enforcement options include:

  • taking proceedings in the Magistrates' Court to recover sums due as a civil debt (section 56, National Assistance Act 1948)
  • imposing a charge on any property belonging to the resident, with interest chargeable from the day after death (sections 22 and 24 of the Health and Social Services and Social Security Adjudication's (HASSASSA) Act 1983)
  • imposing a charge on property transferred by the resident, within six months of going to residential care or while in care, on property transferred by the resident with the intention of avoiding contributions (section 21, HASSASSA Act 1983)

If the debt for unpaid contributions reaches £750, the local authority could start insolvency proceedings to declare the resident bankrupt. Transactions at an undervalue may be set aside within two years, or within five years if the person made bankrupt was insolvent at the time of the transaction, which is unlikely. See sections 339-341 Insolvency Act 1986. A gift may be set aside without time limit and without bankruptcy if the court is satisfied that the transfer was made for the purpose of putting assets beyond the reach of a potential creditor or otherwise prejudicing the creditor's interests. See sections 423-425, Insolvency Act 1986.

This provision is exceptionally wide, and the court has extensive powers to restore the position to that which it would have been had the gift not been made. The Court of Appeal in Derbyshire CC v Akrill [2005] EWCA Civ 308, considered the application of section 423, concluding that the section could apply where a person transferred his house by deed of gift to his children for the purposes of putting it beyond the reach of those who might have a claim in respect of the costs of his imminent residential care.

Although some local authorities have threatened to use insolvency proceedings, few have actually done so, perhaps because of lack of expertise, cost or the prospect of bad publicity. However, with increasing pressures on local authority resources to provide community care services, the incidence of this may rise in the future. There is evidence that families can be placed under considerable pressure to pay for care, even where the gift was entirely innocent.

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6.2 National Health Service-funded care

You may be asked by clients who are already in receipt of care for advice on mitigating the cost of this. You may consider whether the National Health Service (NHS) should fund care, whether wholly or in part.

Section 1 of the National Health Service Act 2006 requires the Secretary of State to promote a comprehensive health service in England with the aim of improving people's physical and mental health, and effectively preventing, diagnosing and treating those who are ill. Section 3 sets out the duty to provide services for the care of those suffering from illness to the extent necessary to meet reasonable requirements. This includes accommodation for the purposes of health services provided under the act. Similar provision applies in Wales under the NHS (Welsh) Act 2006.

Strategic health authorities and primary care trusts carry out this function on behalf of the Secretary of State in England, and local health boards have the responsibility in Wales.

NHS fully funded care is provided in this context, defined in the NHS Continuing Healthcare (Responsibilities) Directions 2007 as 'a package of care that can be arranged and funded by the NHS to meet both physical and mental health which have arisen because of illness'. Thus, the NHS would fund the full cost of care for eligible people in care homes, including accommodation and board, and those in their own homes would receive the cost of their both their health care and any social care funded by the NHS.

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6.2.1 Extent of NHS-funded care provision

Where someone's care is primarily one of health, the full cost of care is the responsibility of the NHS. However, the distinction between care services that can and cannot be provided as part of a package of services is one of degree, and in borderline cases it depends on a careful appraisal of the facts of the individual case.

The Court of Appeal considered whether a local authority could lawfully provide nursing care for a chronically ill patient in the case of R v North & East Devon Health Authority ex p Coughlan [2000] 3 All ER 850. In that case her care included nursing care but was not confined to it. A very general indication as to where the line is to be drawn between lawfully providing care or not is dependant on whether the nursing services were either:

  1. Merely incidental or ancillary to the provision of the accommodation which a local authority is under a duty to provide.
  2. Of a nature which it can be expected that a local authority could be expected to provide.

The judge confirmed that where the individual's care was primarily one of health, the full cost of care was the responsibility of the NHS. Until recently, in England it was the local NHS body's responsibility to determine what they meant by a primary health care need, whereas in Wales it remains up to the local health board. In any event, the NHS body must publish guidance on how eligibility for continuing NHS health care is determined, based on a full assessment of the relevant facts such as the quantity and/or quality of care need and how this is weighed to determine the persons eligibility. See R (Grogan) v Bexley NHS Care Trust [2006] EWHC 4 (admin).

6.2.2 Eligibility for NHS-funded care in England

Eligibility is determined following a full multidisciplinary assessment of the individual's needs which indicate a primary health care need. Certain characteristics of need and their impact on the care required to manage them may help determine eligibility. These characteristics are:

  • Nature - the types of need, and the overall effect of those needs on the individual, including the type (quality) of interventions required to manage them
  • Intensity - both the extent (quantity) and severity (degree) of the needs, including the need for sustained care (continuity)
  • Complexity - how the needs arise and interact to increase the skill needed to monitor and manage the care
  • Unpredictability - the degree to which needs fluctuate, creating difficulty in managing needs, and the level of risk to the person's health if adequate and timely care is not provided

Eligibility and ineligibility should not be based on:

  • the setting of care
  • the ability of the care provider to manage care: only where the successful management of a health care need has permanently reduced or removed an ongoing need will this have a bearing on eligibility
  • the use, or not, of NHS-employed staff to provide care
  • the individual's financial position
  • the need for/presence of specialist staff in care delivery
  • the existence of other NHS-funded care
  • any other input-related, rather than needs-related, rationale.

The National Framework for NHS Continuing Healthcare and NHS Funded Nursing Care in England came into operation in October 2007. The framework is accompanied by a decision support tool, screening tool and fast-track tool for those with apparent and immediate needs.
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6.2.3 Eligibility for NHS-funded care in Wales

Eligibility in Wales is based on satisfying one of the following criteria:

  • The nature or complexity or intensity or unpredictability of the individual's health care needs (and any combination of these needs) requires regular supervision by a member of the NHS multidisciplinary team, such as the consultant, palliative care, therapy or other NHS member of the team.
  • The individual's needs require the routine use of specialist health care equipment under supervision of NHS staff.
  • The individual has a rapidly deteriorating or unstable medical, physical or mental health condition and requires regular supervision by a member of the NHS multidisciplinary team such as a consultant, palliative care, therapy or other NHS member of the team.
  • The individual is in the final stages of a terminal illness and is likely to die in the near future.

Guidance for Wales is contained in WHC (2004) 54: NAFWC 41/2004, which is supported by All Wales Continuing NHS Health Care: Framework for Implementation in Wales , published in 2004. Further advice to the NHS and local authorities on continuing NHS health care (NAFWC32/06) was given in 2006 following the Grogan judgement.

6.2.4 Registered nursing care funding

Your client may receive financial support, even if not eligible for continuing NHS health care, if they live in a care home registered for nursing care, and receive registered nursing care by a registered nurse. This includes any service provided by a registered nurse which involves the provision of care, or the planning, supervision or delegation of the provision of care, other than services which, having regard to their nature and the circumstances in which they are provided, do not need to be provided by a registered nurse. See section 49(2) of the Health and Social Care Act [2001]. Nursing home residents in both England and Wales are now eligible for a contribution of a flat rate towards their care fees.

6.2.5 Transitional arrangements for those in a nursing home before 1 October 2007

Before 1 October 2007, the level of need for residents was assessed as low, moderate or high, with a different financial contribution at each level. Those residents who were on the former high band (£139/week) continue to be funded at the higher level (uprated annually) as the change would otherwise put them in a worse financial position. They can continue to remain on the high band until either:

  • their care needs decrease to what would be the middle of low band level and they become entitled to the single rate
  • they move from the nursing home
  • they no longer need nursing care but choose to continue to reside in a nursing home
  • they qualify for continuing NHS health care
  • they die.

6.2.6 Aftercare under section 117 of the Mental Health Act 1983

The Mental Health Act 1983 at s117(2) creates a joint duty on the NHS body and social services to provide, in cooperation with relevant voluntary agencies, after-care services for certain mentally ill people, until such time as they are both satisfied that the aftercare service is no longer required.

Section 117 of the act applies to those who have been detained under:

  • Section 3 (which provides for the compulsory admission of a patient suffering from any mental disorder to hospital for treatment)
  • Section 37 (a hospital or guardianship order made by the Crown or Magistrate Court)
  • Section 45A (a hospital direction made by the Crown Court), or
  • those who have been subject to a transfer direction made by the Secretary of State under sections 47 or 48.

NHS bodies and social services should not charge for services provided under section 117.

See R v Redcar & Cleveland BC ex p Armstrong: R v Manchester City Council ex p Stennett R: Harrow London BC ex p Cobham [2002] 4 All ER 124.

The act does not define what is meant by aftercare services, but in Clunis v Camden and Islington Health Authority [1998] QB 978, 992 Beldam LJ commented that these 'include social work support, support in helping the ex-patient with problems of employment, accommodation or family relationships, the provision of domiciliary services and the use of day centre and residential facilities'.

It is up to the appropriate authority to determine which aftercare services, within the framework of the care plan, should occur before discharge.

Aftercare services should continue until, after a joint assessment, the NHS body and local authority are satisfied that the person no longer needs them. It is for the authority providing the services to take the lead in deciding when aftercare is no longer required. Funding can end if the patient is no longer in need of mental health care, though in practice this point is unlikely to affect many people. See R v Richmond Upon Thames LBC ex p Watson , The Times, October 15, 1999/ LGO complaint into Bath and North East Somerset Council No 06/B/16774.

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7 More information

7.1 Law Society products and support

7.1.1 Practice Advice Service

The Law Society's Practice Advice Service provides support for solicitors on a wide range of areas of practice. The Practice Advice team can be contacted on 020 7320 5675 from 09:00 to 17:00 on weekdays.

7.1.3 Professional Ethics Helpline

Solicitors Regulation Authority's Professional Ethics Helpline for advice on conduct issues.

7.1.2 Law Society publications

7.1.4 Membership benefits

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7.2 Further reading and reference

7.2.1 Client capacity to give instructions

7.2.2 Publicly funded care

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