Case Study II - Protecting Estate From Long Term Care Costs

Using a Discretionary†Trust†to†protect your estate from Long Term Care

Mrs. Pearson is 85 years old and lost her husband some four years ago. On Mr. Pearsonís death the whole of their estate passed to Mrs. Pearson, the value of the estate now stands at £170,000. Her only child, Samantha, is married and lives in London. Mrs. Pearson has recently suffered a stroke and after being discharged from hospital she was moved into a local nursing home.

She has savings and investments totaling £20,000 and her home is worth £150,000. She has only a small pension income of £325.20 pm and also qualifies for attendance allowance of £254.80 pm - total £580 pm. However, the care fees are £2,240 pm.

Mrs. Pearson has appointed her solicitor as power of attorney and has been advised that she will have to meet the shortfall of £1,660 pm from her savings because her estate is valued in excess of £23,000. She has also been told that in the event of her stay in the nursing being a lengthy one she will be faced with the possibility having to sell the family home to meet the cost of care.


Mrs. Pearson is proud of her financial independence and is also concerned that her life savings are eroding and may even be totally spent. The family home that she has lived in for 45 years was always earmarked for her daughter Samantha. Mrs. Pearson would like Samantha to inherit the family home and would be devastated if it had to be sold to cover care costs. She would also like her two granddaughters to inherit a modest amount.

The Long Term Care costs COULD have been avoided!

Before Mr. Pearson passed away a Nil-Rate Discretionary Trust could have been set up and tenancy of the family home changed from Joint Tenancy to Tenants-in-common. On Mr. Pearsonís death, his 50% share of the home, cash & investments would have been put into Trusts for the Beneficiaries of that Trust (i.e. his daughter Samantha). Mrs. Pearson would continue living in the family home, and would have access to the Trust in the form of I.O.U. loans repayable on her death from the estate.

A few years later Mrs. Pearson, after a stroke, finds herself in a situation where she needs to go into a nursing home. The Local Authority assess Mrs. Pearsonís ability to pay, however because the Mr. Pearsonís share of the family home is in Trust, the Local Authority are unable to take into account the value of the family home, therefore for assessment purposes the total value of Mrs. Pearsonís estate is valued at £10,000 (her share of cash & investments).

Most of us work very hard over the years to buy our own homes and build up our savings for our retirement and would like to leave a ďlittle somethingĒ for our children and grandchildren after we are gone.

Unfortunately, the costs involved in moving into a Care Home can literally wipe out your entire savings and your home may have to be sold to pay for care fees. This could mean that your loved ones could receive very little, or even nothing at all of what you originally intended them to have.

By undertaking careful estate planning today, you can ensure that your estate is not savaged by the cost of Long Term Care in the future and your family home remains in the family.

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