Life Trust, Care Fees and Seven year Shadow

I know this might throw up all sorts of comments, but here’s the question. For death planning and care fees, using SEV and Trust to hold share, there is a given 7yrs gap between setup and potentially using the plan and being successful.

For a Life Plan using a suitable Life Trust, once signed, does the seven-year rule apply or is it effective immediately (assuming healthy clients, and no knowledge of the future need was there, ie through car accident or unexpected medical condition etc.).

Cheers, Chris

We may have been here before.

A transfer of assets to trustees is a deprivation. The settlor no longer owns the assets, the trustees own them.

Is this deprivation being made to avoid contributing to care home costs?

Looks likely. It would depend on the circumstances of each specific case.

There is no 7 year rule.

IF the client(s) are fit and healthy and put the property into Trust for reasons other than care (but possibly with care in mind eventually) and experience a health problem that they had no way of knowing about whether that be six months six years hence, how can that be deprivation? I agree it’s a case by case issue and the Care Providers will still try to attack the property citing “deprivation” but there must be a definitive rule that governs this like Section 7.019 of the CRAG Regulations for Severance and Death Trusts? To me, if a client does nothing they may end up paying, if they do something they may not have to. Yes, its a gamble, but to potentially save your home???

The ‘usual’ reason for gifting the complete residence into Trust is the fact that the owners have thought of care costs and the effect that those costs can have on a substantial asset should they need to be cared for for many years.

The thought alone could give rise to trying to deprive themselves of assets to meet those costs even though they may not have considered that LA care is not to the standard that most of us would wish for if we could afford to pay for our final years in comfort to our own standards and the care that would equate to our own family looking after us.

That being said, if the gift is to avoid inheritance taxes, then a full rent would need to be paid to the Trust by the settlor/s, producing Trust income to be taxed. The ultimate sale of the property following the death/s would create CGT for the Trust and I believe that the 7 year rule would apply, which answers the question, although others may not agree on this point and I may be corrected.

Other Trust schemes may offer alternative ways of reducing some assets that can be attacked for care costs, but LA would always look at everything they can and personally I would prefer to know that there was enough loot to keep me comfortable in my dotage.


There is no definitive rule hence its impossible to guarantee such planning will succeed, regardless of the elapsed time or health of those making such transfers. And while the council has to prove the deprivation, I suspect councils will increasingly look to this as their funding comes under pressure. Was it a past Chair of STEP who said this type of planning has the potential to become another mis-selling scandal?

For many years now I’ve directed clients considering this (which is many) to Age UK Factsheet 40 as its an impartial look at Deliberate of Deprivation. Only a handful have continued once reading it, and then I insisted they sign confirmation of the advice given… Though as well as the Deprivation, and possibly more important, is the loss of control even if they are also one of the Trustees.