Trusts and Long-Term Care Fees
What Trusts Can – and Cannot – do to Protect Your Home
Long-term care is one of the most significant financial concerns British families face. With residential care costs running into thousands of pounds a month, many families ask whether putting their home or savings into a trust can protect those assets from being entirely consumed by care fees.
The honest answer is that trusts can play a genuine role in this conversation, but only when used properly, for the right reasons, and well in advance. They are not a guaranteed shield, and any provider who tells you otherwise is overselling — often in ways that can cause serious harm. This page sets out what the law actually allows, and how to think about your options realistically.
How the Care-Fees Means Test Works
In England and Northern Ireland, the local authority assesses your capital — savings, investments, and, often, your home — to decide how much of your care you must fund yourself. The current thresholds are:
- Above £23,250. You’re treated as a “self-funder” and pay the full cost of your care.
- Between £14,250 and £23,250. The council contributes, but you also contribute from your income and “tariff income” calculated from your capital.
- Below £14,250. The council covers most of the cost, though you still contribute from your personal income.
The thresholds differ in Scotland (£35,000) and Wales (£50,000), and all of these limits are reviewed periodically by government, so the current figures should always be confirmed.
Can a Trust Protect Your Assets?
A trust is a legal arrangement in which you transfer ownership of assets to trustees, who hold them for the beneficiaries. Because the assets are no longer legally yours, they may be excluded from the local authority’s financial assessment.
But “may” is the key word. Whether the trust actually protects the assets depends on what kind of trust it is, why it was set up, and when. Local authorities have wide powers to look behind a trust arrangement, and timing alone is not enough.
The Three Structures Most Often Discussed
Life Interest Trusts in a Will (IPDI trusts)
This is often considered the most reliable and well-established approach for couples. By owning the family home as tenants in common rather than as joint tenants, each spouse can leave their share of the property to a trust in their will. If the surviving spouse later needs care, only their half of the property is taken into account in the means test — the deceased spouse’s half, sitting in the trust, is protected for the children. Where the trust arises on death, it has a specific tax status known as an Immediate Post-Death Interest (IPDI), which carries useful inheritance tax treatment.
Lifetime Asset Protection Trusts
Set up while you are still alive — typically by transferring your home to the trust during your lifetime and retaining the right to live there rent-free. These arrangements are much more likely than will-based trusts to be challenged by a local authority, and they must be set up for genuine, properly motivated planning reasons. They do not provide a quick fix, and they do not guarantee protection.
Discretionary Trusts
Offer maximum flexibility, with trustees deciding how funds are distributed among a class of beneficiaries. Because no beneficiary has a legal right to the assets, the fund carries a degree of protection. Like all lifetime trusts, they need to be set up for genuine planning purposes rather than as an after-the-fact response to a foreseeable care need.
The Single Biggest Hurdle: Deliberate Deprivation of Assets
The most important rule to understand in this whole area is the deliberate deprivation of assets rule. If a local authority believes you placed assets into a trust (or gave them away) specifically to avoid paying for care, it can treat you as still owning those assets – known as notional capital – and assess your contribution accordingly. The trust, in effect, achieves nothing.
When considering whether deliberate deprivation has occurred, councils look at three things in particular:
- Foreseeability. Did you know, or could you reasonably have known, that you might need care soon when you set up the trust?
- Motivation. Was avoiding care fees a “significant operative purpose” of the arrangement?
- Timing. Unlike inheritance tax, there is no seven-year rule for care fees. Councils can look back indefinitely. That said, a transfer made many years before care was needed — when you were in good health and had no reason to anticipate a need for care — is significantly harder for a local authority to challenge than a transfer made when care was clearly on the horizon.
The honest test is simple: a trust will only do its job if it would have made sense as part of your wider estate planning, even if care fees had never been a concern. That’s the line between sound planning and an arrangement that the law treats as ineffective.
What This Means in Practice
Three principles run through all of this:
- Plan early, while you are in good health. Trust arrangements work best — and stand up to scrutiny — when they are set up well before any care need is foreseeable.
- The trust must have multiple genuine purposes. Sound planning addresses inheritance tax, protects beneficiaries from divorce or bankruptcy, makes proper provision for blended families, and avoids the cost and delay of probate. Where care-fee protection is one valuable side effect among several legitimate purposes, the planning is robust. Where it’s the only purpose, it is unlikely to work.
- Take regulated advice. Unregulated companies marketing “Asset Protection Trusts” with money-back-style promises remain a serious problem in this industry. Many of the families we help are untangling exactly these arrangements — sometimes years after the firm that set them up has disappeared. Always work with a regulated, qualified professional, and ask plainly what protections are guaranteed and which are not.
Speak to Us About Long-Term Care Planning
If you’re thinking about how to balance the needs of your family, your home, and the realistic possibility of long-term care costs, we’d be glad to help you understand your options honestly — and to tell you plainly when a trust is the right answer and when it isn’t.
FAQs: Long-Term Care Planning
Not on its own, and any provider claiming otherwise is overselling. While placing the property in trust removes it from your direct legal ownership, the local authority is fully entitled to investigate why the trust was set up. If they conclude the main reason was to avoid care fees, they can treat you as still owning the property — known as notional capital — and charge you accordingly.
No. This is the single most common misunderstanding in this area. The seven-year rule applies to inheritance tax, not to care fees. Local authorities have no time limit on how far back they can look when investigating possible deliberate deprivation. That said, a transfer made many years before any care was foreseeable, when you were in good health, is far harder for a council to challenge in practice than one made when care was already on the horizon.
In most lifetime trust arrangements over the family home, yes. The trust is typically structured so that you retain a life interest — the legal right to live in the property, rent-free, for the rest of your life — even though the trust now holds the legal ownership. You no longer own the property in the strict sense, but your right to live there is secured.
It’s the legal test councils apply when they suspect you have intentionally given away or transferred assets to reduce what you would otherwise have to pay for care. If they decide that’s what happened, they can treat you as if you still held those assets and, in some circumstances, seek to recover them from the people who received them.
A property protection trust created in a will is often the most reliable form of care-fee planning for couples. Where you own the family home as tenants in common, each partner’s share is a distinct asset that can be left in trust on death. When the first partner dies, their share passes into the trust rather than to the survivor. Because the surviving spouse never owns that share, the local authority cannot count it as their capital when assessing care contributions later. The deceased spouse’s intentions for their children are protected, and the survivor’s home life is unaffected.
The council cannot force a sale where a spouse, partner, or certain dependent relatives — such as a disabled child, or a relative over 60 — continues to live in the property. If you live alone and move permanently into care, however, the house is generally treated as an asset after the first twelve weeks of your stay, and can form part of your means-tested capital from that point.
The main risk is loss of direct control. The trustees become the legal owners, and you would normally need their agreement to sell or move home. There can also be tax consequences — including potential lifetime inheritance tax charges, the loss of the Residence Nil-Rate Band, and capital gains tax implications — that need to be modelled carefully. And a poorly drafted trust, particularly one set up by an unregulated provider, can be challenged successfully and produce none of the protection you thought you were buying. Honest, regulated advice at the start is by far the best safeguard.