ECA course: Part seven
Protecting the interests of older people

DAVID COLDRICK continues the ECA series by introducing some key concepts concerning the local authority means-test for long-term care, and makes some practical observations on source materials and how to follow the structure of the law.

Understanding assessable capital

The desire to transmit accumulated wealth, ‘capital’, to the next generation has been a human desire since the concept of wealth was born. Even though its receipt can have ill effects on a minority, historical references usually consider an inheritance to be a wholesome blessing. And, it remains an important concern for those who have built up any degree of wealth.

Abraham Lincoln told Congress in 1861: “Capital is only the fruit of labor, and could never have existed if labor had not first existed.” This remark can be used as both the logical explanation and justification for the desire of many. Having worked hard, paid high taxes, and served the nation in peace and war, is transmitting the fruit of those labours an unreasonable expectation? Another American, Benjamin Franklin, considered: “Nothing is certain but death and taxes.” Today, nothing is more certain than the rising cost of long-term care. Just like taxes it can have a serious adverse impact on the transmission of accumulated wealth.

In March 1999, The Royal Commission Report (With Respect to Old Age) (RCR) examined the charging regime applicable to long-term residential care. It noted: “The system at the moment helps people who are poor, demands that people of modest means make themselves poor before it will help, and affects people to a lesser degree the richer they are and better able to afford the sums required. This seems strangely inconsistent…” (RCR, Paragraph 4.17). A purpose of this work is to guide legal and other advisers on how to provide a service that can claim to offer some degree of protection to accumulated wealth, particularly with regards to those of ‘modest means’.

Protection of the capital of those in need of long-term care casts a burden upon the taxpayer. However, the person requiring care has usually been a taxpayer or one legitimately excused from paying tax and national insurance through ill health, disability or some other reason. That is precisely why they are also made to pay for their care under rules which operate to assess their ability to pay. One might consider this a case in which the author is taking sides, engaging the law in politics, pre-judging issues of morality and even economic libertarianism. It is, however, primarily submitted to involve the provision of a service to the client. Some might call this assertion pious.

If so, piety and good business sense are related and there is nothing new about that.

The first major discussion in this work, contained within parts I to VI, comes under the category of ‘planning ahead with a little useful knowledge’. It considers outright gifts of capital and will-planning with an emphasis on the family home as a major capital asset of those with ‘modest means’. But there remains a need to examine how the capital-assessment system, the local authority means-test, applies in detail. This is to ensure that it is operated correctly when it applies, and to facilitate some carefully considered additional lifetime planning. The result is the potential for further protection of the assets of older people over and above that which a little useful knowledge might bring.

In the parts of this work concerning the means-test assessment of a resident’s capital, the availability of free, long-term residential and nursing care by the National Health Service and local authorities is practically ignored. The possibility of such care provision should, in practice, be a carefully considered preliminary in all cases, but it fits more conveniently into later parts.

Is there really a need for planning to protect the capital of older people?

It is currently very easy to ignore the importance of the study of asset-protection planning for older people. And, some firms of solicitors have dropped out of providing the relevant advice altogether. The author respects this decision but has personally concluded that this is a time of latent problems resulting from political and economic maladjustment. Like a volcano, everything is calm upon the surface as the magma chamber beneath slowly begins to fill. But once the springs evaporate into steam, the ground begins to shake and then heave up, it is too late to do anything.

The need for planning for the cost of long-term care with existing capital assets has been mitigated to some extent in recent years. There has been a rapid, internationally contagious, rise in residential property values. If an older person owns a valuable property, they might sell it and use the interest on it to supplement their other income in a time of need. Alternatively, they might take out an immediate care plan with a financial services provider to cap the cost of care to their estate, should they need to be supported over an extended period. Much accumulated wealth is presently being preserved in these ways.

As a natural consequence of recent property price inflation, some advisers have forgotten just how pressing the need was to consider how to protect the existing assets of older people. The author believes that memory is a great betrayer. He is a pessimist and expects a major ‘readjustment’ in capital values. Asset price bubbles tend to burst, and this always reveals many things. His wager on how much readjustment is required in respect of UK residential property is already placed, with no mean amount at stake. Both greed and fear tend towards extremes, and when both combine, it is still worse. There has never been a ‘soft landing’ after a boom in UK residential house prices. When everyone says there will be one, the reverse is a more likely outcome.

Higher life expectancy and greater demands upon local authorities, combined with greater lifetime debt levels, less than adequate pension provision, generally lower interest rates and low annuity rates, might expose more capital resources to the rigours of the means-testing assessment in the future. At the same time as income proves inadequate to meet the cost of care, this cost also tends to rise at a rate beyond the general inflation rate. As a result, a detailed understanding of how the capital-assessment system works is helpful for advising older people on the impact of their present actions. That is, without relying on permanently rising property prices or upon the availability of financial-services products that might have a finite shelf life.

Sometimes this understanding will assist in prudent forward planning and sometimes it will assist in ensuring that capital, which should not be treated as the properly assessable capital of the resident, is not accidentally taken into account. In either case, it will help protect the interests of the older person and their chosen beneficiaries.

Important sources of information and recommended reading on the subject

Before examining the subject of capital assessment in detail, apart from the primary sources, the statutes, regulations and guidance referred to in this work, those readers wishing to study the subject in greater depth should consider the following:

Paying for Care, fourth edition, published by Child Poverty Action Group (CPAG). 94 White Lion Street, London N1 9PF, www.cpag.org.uk. This provides a practical overview of the long-term care system, with a benefits-related perspective. Readers might also wish to consider obtaining the most recent edition of Welfare Benefits and Tax Credits to which Paying for Care refers, and within which certain common subjects are expanded upon. Readers should also note that CPAG publish Welfare Rights Bulletin which is a bi-monthly magazine that contains useful articles on topical issues to keep its subscribers abreast of changes in benefits regulations and case law;
Social Security Legislation 2003 (2004 edition available later this year), published by Thomson (Sweet and Maxwell), 100 Avenue Road, Swiss Cottage, London NW3 3PF. www.sweetandmaxwell.co.uk This is a key sourcebook for Income Support legislation and case law, with commentary from respected legal writers. Its consultant editor is CPAG. While it does not contain a commentary on the local authority means-test, much of this can be better understood by appropriate comparison and analogy with the position under income support. The author is also pleased to acknowledge that this work provided invaluable assistance in the preparation of this ECA course as a result of its systematic approach to relevant case law;
Long-term care for older people (2001), published by Jordan Publishing Ltd, 21 St Thomas Street, Bristol BS1 6JS. Margaret Richard’s pioneering work in this field is now slightly out of date in some respects but her clear overview of the methodology of the local authority means-test, with useful examples, means that this is still useful for practitioners;
DWP Decision-makers Guide. Although lengthy (14 volumes) and sometimes confusing, this work contains nuggets of insight. www.dwp.gov.uk/publications/dwp/dmg/cont.htm;
Digest of Commissioner’s Decisions. This is exactly as is stated in the title. www.dwp.gov.uk/advisers/docs/neligans/index.htm;
The DWP website (www.dwp.gov.uk) is a truly infuriating warren of bureaucratic emanations that can be useful in small doses.

The National Assistance Act

Sections 21(1) and 22 of the National Assistance Act 1948 (referred to below as the NAA) – as amended by the National Health Service and Community Care Act 1990 – outline the general duty upon local authorities to provide accommodation, and their obligation to charge for it. One Section institutes the service and the other the methodology for its payment. The connection is not co-incidental but the duty placed upon the local authority is not made dependent upon the availability of means of payment. It is therefore a needs-led system:

Section 21(1) states the basic duty of a local authority to its citizens. It provides that local authorities have to arrange residential accommodation for those “who by reason of age, illness, disability or any other circumstances, are in need of care or attention which is not otherwise available to them”. The issue of ‘needs assessment’ will be dealt with in subsequent parts of this work;
Section 22 of the NAA indicates that a local authority ‘shall’ recover the full economic cost of the accommodation they arrange. Section 22(5) of the NAA permits regulations to be made instituting a means-test to assess how much an individual must pay, if anything. The current regulations are contained within the National Assistance (Assessment of Resources) Regulations 1992 (Statutory Instrument 1992/2977) as amended – referred to below as the NA(AR) Regs. They contain regulations for both income and capital means-testing. The present focus is on the capital aspect;
Other enactments can break the link between the Section 22 NAA duty to charge and the provision of care and accommodation. Provision made under Section 117 of the Mental Health Act 1983 is an example. Accommodation, provided for those discharged after ‘sectioning’ for aftercare under the Mental Health Act 1983, is provided free of charge. This will be considered in a later part.

It should be noted that local authorities now arrange, rather than provide, most residential accommodation. They buy it from external providers including their own former ‘privatised’ care homes, commercial organisations and sometimes charities or similar bodies.

The complexity and interpretation of the NA(AR) Regs underlying the local authority means-test

The local authority means-test encapsulated within the NA(AR) Regs is practically identical to the means-test for other general income-related benefits.

The NA(AR) Regs repeatedly refer to and incorporate parts of the Income Support (General) Regulations 1987, as amended, and referred to below as the IS(G) Regs. This link with ‘mainstream’ means-tested benefits was also the case under the former supplementary benefit regime which, in turn, replaced National Assistance.

The link between the NA(AR) Regs and the IS(G) Regs is both a complicating and a potentially illuminating factor. It is a complicating factor because the reader is likely to find it difficult to follow the detail of the NA(AR) Regs. While simple in themselves, as they refer to different regulations, they are not a cohesive whole which can be read as such. Many amendments to the different sets of regulations have also been made, which need to be taken into account. Only after tracking through the different regulations and amendments, with cross-references, can the reader hope to be able to interpret the provisions. This is a significant factor which undermines both the lay and professional understanding of the system. It is arguable that some local authorities have remained ignorant of the meaning of the regulations, simply as a result of their complexity, but that others actively seek to hide behind the obscurity for their own ends. Neither is acceptable. In addition to the regulatory complexities, the plethora of available providers and funders places further stress upon user comprehension.

The RCR notes: “The current system [of elder care provision and financing] is particularly characterised by complexity and unfairness in the way it operates. It has grown piecemeal and apparently haphazardly over the years. It contains a number of providers and funders of care, each of whom has different management or financial interests, which may work against the interest of the individual client. Time and again… the public have expressed bewilderment with the system - how it works, what individuals should expect from it and how they can get anything worthwhile out of it. We have heard countless stories of people feeling trapped and overwhelmed by the system, being passed from one budget to another, the consequences something being catastrophic for the individuals concerned.” (RCR, p.33, Paragraphs 4.1 and 4.2).

The interlinking of the NA(AR) Regs and the IS(G) Regs can aid the proper interpretation of the NA(AR) Regulations. This is because established practice in mainstream income-related benefits, such as income support, should logically be applied in the financial-assessment process for residential care arranged by local authorities. Inconsistent practice in the course of the administration of such interlocked regulations can imply interpretative error.

Mainstream income-related benefits are subjected to an effective appeals system, which lead to formal decisions being taken on difficult legal points. These loosely amount to precedents, which, in turn, tend towards the creation of consistent practice. The lack of an effective appeals procedure in the context of the administration of the NA(AR) Regs is an historical anomaly. That anomaly can be partially overcome by reference to relevant cases involving the interpretation of mainstream income-related benefits. The Scots Court of Session in Yule v South Lanarkshire Council (1998) 1 CCL Rep 571 confirmed that the NA(AR) Regs should, as a matter of law, be considered as part of the wider income-related benefits system. This important legal-interpretative link is frequently overlooked in practice, especially by local authorities who should know better.

One of the aims of this work is to allow interpretation of the IS(G) Regs to stimulate appropriate best practice in the interpretation and administration of the NA(AR) Regs. Tribunal decisions are not the same as the binding precedents set by higher courts. They do not even bind tribunals at the same level, but given the independent, quasi-judicial, process involved, a local authority should not depart from such decisions lightly. To do so would violate principles of best practice and place it at risk from effective defences to any action for the recovery of wrongly-assessed care fees. It could also open it to attack from the Ombudsman, judicial review and possibly the law relating to human rights. The author’s hope is that the tribunal system will be extended so as to have direct, rather than indirect, application to administration of the NA(AR) Regs.

The importance of the Charging for Residential Accommodation Guide as an interpretive aid of the NA(AR) Regs

A further result of the complexity of the underlying NA(AR) Regs is the need for a readily-accessible and cohesive guide to those regulations for both local authority assessors and the lay person. Solicitor Margaret Richards notes in Long-term Care for Older People (Jordan, 2001): “…The means test is complex, technical and difficult for clients to understand. It will generally be administered by local authority finance officers, who may have little grasp of legal concepts and certainly lack the long experience of the Benefits Agency in operating the income support rules.”

The Charging for Residential Accommodation Guide (CRAG) is issued primarily for the benefit of local authority assessors by the Secretary of State for Health. It is issued under Section 7(1) of the Local Authority Social Services Act 1970 as a local authority circular (LAC). It is mandatory, not merely advisory. Any suggestion by a local authority that it is ‘just guidance’, which may be departed from practically at will, is incorrect. It is not optional. Financial assessments that are not in accordance with the CRAG are open to legal challenge. However, the CRAG is not the law itself but an interpretation of the NA(AR) Regs.

Sometimes the CRAG is vague, confusing and even incorrect. The defects can be annoying and unhelpful, but taken as a whole it does contain useful insights into the way the financial-assessment system works. It can also provide a useful way of checking up on and restraining some of the more obvious errors which can arise in the assessment process. The CRAG is revised regularly, usually in March and December each year, and is available from the Department of Health. PO Box 777, London SE1 6XH. Fax: +44 (0)1623 724 524. E-mail: doh@prologistics.co.uk. The most recent edition at time of writing is LAC(2004)9, which has been amended 21 times. Advisers wanting to provide a service to residents and carers should become familiar with the CRAG.

From the perspective of the adviser committed to providing a service to the older client and their carers, some parts of the CRAG are more likely to be well-thumbed than others. Such a reader may wonder why the CRAG Paragraph 1.011 deals with nursing mothers, why Section 9 deals with earnings, and why Section 12 covers the issue of students in such great detail. None of these seems likely to be relevant to the average older person contemplating residential care. Primarily, this reflects the integration of the NA(AR) Regs with the rules governing mainstream income-related means-tested benefits where issues of earnings and students are more likely to be relevant. However, it is also important to note the role of the CRAG as part of the Fairer Charges regime for care at home (See LAC (2001)32), as opposed to care in a care home. In the situations envisaged under Fairer Charges, the CRAG appears to become a thinly disguised set of charging regulations. That was not part of its original purpose and it is a role that it fulfils less than adequately.

The main sections of the CRAG, with a brief summary of content and relevance, are numbered as follows:

‘Introduction’. Broadly, this covers the status of the CRAG, how the residential care system operates and how it links with other benefits;
‘Less Dependent Residents’ covers residents who are not accommodated in “an establishment which is carried on or managed by a person who is a registered under Part 2 of the Care Standards Act 2000” (CRAG Paragraph 2.008). Most older people in need of residential care will not fall within this category;
‘Temporary Residents’ considers the position of those entering care for a period that is unlikely to exceed 52 weeks. That period is the usual definition of ‘temporary’ for these purposes. Means testing is not ‘required’ for the first eight weeks. The complex overlap with mainstream income-related benefits is considered;
‘Couples’ examines the NA(AR) Regs means-test in respect of couples as temporary or permanent residents;
‘Personal Expenses Allowance’ examines the income that a resident should be allowed to keep as ‘pocket money’ under the income aspect of the NA(AR) Regs means-test;
‘Capital’ examines the definition of capital, its impact on a resident’s capital means-test assessment, principles of capital valuation, disputes over ownership, capital not taken into account for the purposes of the assessment (permanently or temporarily), and the especially difficult issues of ‘notional capital’ and ‘deprivation of capital’. This last point has great significance to any asset-protection planning with an eye to reducing the impact of the cost of care;
The ‘Treatment of Property’ section (for ‘property’ read ‘land and buildings’) is particularly important as the main capital asset will tend to be the family home and its protection will tend to be a high priority with clients concerned with the issue of possible future care fees;
‘Income Other than Earnings’ examines the definition of income, its impact upon a resident’s income means-test assessment, the link with mainstream income-related benefits, disregarded income streams and certain special-case situations. It also considers the difficulties of ‘notional income’ and ‘deprivation of income’;
‘Earnings’. True earnings from paid work are not likely to be relevant in most cases involving retired older people. But there is important comment upon occupational and personal pensions, royalties, the interplay with the benefits system and certain special-case situations;
‘Trust Funds’ is probably one of the least accurate and most unhelpful sections of the CRAG. It shows a naïve appreciation of trusts;
The ‘Liability of relatives’ section explains how a local authority might consider obtaining extra funding from a spouse. It is understood that the underlying statutory provisions are to be repealed;
The section titled ‘Students’ will have little application to older people entering residential care while potentially relevant to younger ones;
‘Transitional provisions’ refers to archive matters only. (Unnumbered) ‘Annexes for information’. This contains tables and certain limited legislation such as ‘Tariff income on capital’ and ‘National Savings Certificates Values’.

Observations

Looking to protect one’s capital for the next generation is as natural as working to earn it, and times may not have changed forever on the issue of house prices. It has also been observed that there is information available on how the dreaded means-test applies. So, it must be the case that readers want to engage in some research into what assessable capital is and what can be done to avoid unnecessary loss to the estates of older people and their heirs. The complexities of this section may look modest when the author sets to with a detailed analysis of the regulations themselves, but by then, most readers will perhaps have had a summer holiday. They may want to book an autumn break for just after the release of the next edition.

David Coldrick is partner in charge of Wrigleys solicitors Sheffield office. He can be contacted on 0114 2675588 or via david.coldrick@wrigleys.co.uk