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Feature

posted 17 May 2001 in Volume 6 Issue 4

Legal update

New Capital Threshold from 9^th April 2001.

The DSS did not raise its capital limits for income-related benefits for those in residential care. This is an inconvenience as the local authority thresholds are now higher and out of line with them.

The new lower threshold rose from £8,000 to £11,500 (previously not announced) and the upper threshold rose from £16,000 to £18,500. The figures were uprated to maintain the value of retained capital at 1996 levels, taking into account the increased cost of living.

The shortly to be enacted Health and Social Care Act (HSCA)

This Bill has had its third reading in the Lords. It appears to have only been substantially amended as to the saving of Community Health Councils. A rather welcome reprieve. Thus it is timely to check what it may mean for the adviser and their clients. The clause references must be treated as provisional at this stage.

Proposed clause 52 of the Health and Social Care Act: facilitating  new 'disregards'.

This clause amends section 21 of the National Assistance Act 1948. That section creates the local authority duty to provide accommodation for its citizens in need of it. (That is if care and attention is not 'otherwise available' to them). Section 52 amends section 21 (2A) and (2B) so that in determining 'whether care and attention are otherwise available to a person, a local authority shall disregard so much of the person's resources as may be specified in, or determined in accordance with, regulations made by the Secretary of State for the purposes of this subsection.' Thus, a person's resources are only those 'within the meaning of regulations made for the purposes of that subsection.' 

To a degree, section 52 reiterates what applied previously in practical terms but the clause also allows regulations, such as those relating to the new deferred payment agreements under the proposed section 54 of the HSCA and the new three month disregard of residential property which require, by their very nature, a breaking of the link with the capital threshold when a local authority seeks to determine whether or not care and attention is 'otherwise available.'

In most circumstances if the resident has over the capital threshold then the local authority need not get involved as the resident is deemed to have resources 'otherwise available' to them. Section 52 is thus an assistance to section 54, and the new three month disregard more than anything rather than being of particular note in its own right.

Funding by residents of more expensive accommodation.

The proposed section 53 of the HSCA is subtitled, 'funding by resident etc of more expensive accommodation.'

This is in the context of situations where the local authority 'standard rate', which it is willing to pay, is exceeded by the cost of privately available care home beds. In those situations, a third party 'top up' is required where the local authority arranges care and there is no material in the relevant 'needs assessment' which would create an obligation on the part of the local authority, to consider funding at a higher rate than is 'usual'.

The resident is not allowed to self-fund the difference if they are claiming local authority assistance, or more specifically, avail themselves of Part III accommodation under Sections 21 to 26 of the National Assistance Act 1948. The logic of that restriction was stated in the 'Explanatory Note' to the Health and Social Care Bill as; 'they will already have been assessed for a fair contribution so should not have extra resources to utilise in this way.'

That is why a third party is required. There are other financial reasons why a local authority would be reluctant to agree to a placement in a care home whilst the resident paid their own top-up fee. A cynic would suggest that these were the real reasons behind the denial of the right to be a 'self top up.'

With the new 'three-month disregard' of the residence for local authority financial assessment purposes and the introduction of 'deferred payment agreements' the situation must change. The person who chooses more expensive accommodation, whilst using the three-month disregard, would need to be able to act as their own top-up in the interim. That is broadly in line with the overt reasons given in the 'Explanatory Note' of why there is a bar upon self top-ups in more general situations. Whereas a resident will ordinarily be running down his irreplaceable resources, the resident  with a temporarily disregarded asset, will have 'extra resources' after a short delay.

It does not appear to the author that the ability to self top-up will apply to all residents who have a little extra cash they are willing to spend on their own care, although he also believes that Section 53 may leave the door open to this. The reader must remember that a local authority, having assessed the individual's needs and having accepted underlying financial responsibility itself, makes the placement contract with the home. The resident's financial resources may be very limited. That, in turn, limits their ability to continue to self top-up in the future. This makes self top ups deeply unattractive to a local authority.

But why can't the local authority just accept a self top-up in the short term and then move the resident to less expensive care when the money runs out? The ability of a local authority to move an established resident from a care home where a top up is required to one where it is not is limited, by the right of the resident to choose the source of care. Further, a care plan is most unlikely to agree that a move is in the interests of the resident. The ability to move a resident may also be limited by the Human Rights Act and other associated arguments involving 'elder abuse.'

Clearly to move a very old person from home A to home B for reasons of cost, when the source of the top-up runs out, will not do them any good. Thus the local authority may end up with a larger bill than it is happy to pay. It is likely that the regulations relating to the proposed section 53 will take account of this worry by denying the possibility.

The proposed section 53 does not, in itself, allow for the self top-up. It merely facilitates the anticipated regulations to meet the gap between what 'the local authority providing it would usually expect to pay [ie the standard rate or the standard rate plus an individually agreed element on account of the particular demands of the needs assessment] in order to provide Part III accommodation suitable for a person with the assessed needs of the resident.'(proposed section 53(2)(a))

The proposed section 53(2)(b) also allows the new regulations to enable the self top-up to be 'made out of such of his resources as may be specified in, or determined in accordance with, regulations…' Clearly, by limiting the 'specified' resources the ability of any given individual to effect a self top-up is determined. Some resources will be specified. Others will not. If they are not specified then a self top-up cannot be raised from them under the new regulations.

The three-month property disregard.

This disregard became effective on 9^th April 2001. The disregard applies to disregard a resident's private residence so far as it is not otherwise already disregarded under the NA(AR)Regulations 1992. The disregard only applies to those entering or commencing permanent accommodation on or after 9^th April, 2001. It would be interesting to see if there was a rush of discharges arranged by local authorities before that date! Effectively it extends the responsibility of a local authority to make suitable placement arrangements for those assessed as in need of care if they own their own home but otherwise fall below the capital threshold. This will place more people under the direct responsibility of the local authority as the fact of having a property will not, initially at least, give them relevant resources so as to make care and attention 'otherwise available' to them.

It applies for 12 weeks (a kind of DSS 'three months'!) from the permanent admission of the resident into residential accommodation. Under the regulations and the CRAG a stay may be 'temporary' for up to 52 weeks. Thus the disregard may be effective, in principle, to disregard a property for 52 weeks plus a further 12 weeks. That is if there is any reasonable prospect of the resident returning home within the 52 week period. It would be unsurprising if 'care plans' made with finance in mind begin to make a comment that 'this person cannot ever return home'. From the point of view of an adviser that kind of tactic must be resisted. A 'rolling review' must be preferable to protect the value of the family home. The draft policy and guidance consultation paper issued on 14^th February, 2001, by the Department of Health indirectly noted the financial implications by stating 'Councils should determine eligibility, and complete other aspects of the assessment, without undue delay.' It adds, 'delays on the part of the council that go beyond 12 weeks following permanent admission do not affect a resident's entitlement to the disregard. If a person is eligible, the three month disregard applies from the date of permanent admission and no other date. In other words; 'Don't let the advisers to the resident/carer get away with a disregard when one should not really apply. Get your potential resident's care plans right and fast'!

If a person's property is sold within the three-month disregard then the disregard will cease once the sale has completed.

The draft policy and practice guidance consultation paper added: 'As with all financial assessments councils should ensure that residents' are provided with adequate information to participate fully in the assessment.' This remains to be seen.

Twelve-week contracts with care homes may be required if the needs assessment and the care plan indicate that the resident can never go home and that the resident's resources, including the family home, will at that point take them over the capital threshold. Otherwise temporary contracts will be required. Discharge from a hospital without a needs assessment and a care plan must always be wrong but where effected the adviser must make it clear to the local authority that until the proper assessment process is completed that placement must be treated as merely temporary. This will extend the period of the disregard so it starts only upon the formal admission of permanence.

Deferred payment agreements.

Is the scheme of any real benefit?

The proposed section 54 of the HSCA is subtitled, 'power for local authorities to take charges on land instead of contributions'.

The explanatory notes to the Bill, as it progressed through Parliament, stated that 'The effect of this clause is to make it possible for people going into care to defer selling their homes in order to pay for their care until after they leave the care home or when they die. In practice the local authority makes a loan to the resident and recovers the money from the estate when the person dies or leaves the care home'. The author would suggest that the subtitle and the explanatory note are more accurate descriptions of the scheme than certain government propaganda. The propaganda suggested that an older person would no longer need to sell their home to get long-term care provision after the Act takes effect as anticipated in October 2001. In fact all it does is cause a delay in the local authority making a recovery of fees it agrees to pay in the meantime.

Under the NA(AR)Regulations and the CRAG interpretation of them it is clear that unless a person is not going to return home then that home should be disregarded. Further, if a relevant person, such as a spouse, lives on in that property it will be disregarded. This combination should mean that the pre-emptive assessment of the home should not take place in the first place. A person with a short-term need should not be threatened with an assessment for care fees based upon the value of the family home. Such attempts must be resisted by the adviser.

If a person enters care for the longer term then, subject to the relevant disregards, the family home will generally need to be sold. There will be little point in leaving it vacant. It will be subject to rapid dilapidation and depreciation, and a vacant property is a high insurance risk. Only if it can be let out at a good rate or if the property market is booming will it be better to keep it in specie. Letting a property out is problematic and increasingly subject to complex regulation. Agents also charge for their services and a resident will be liable to both make appropriate tax returns and pay tax upon net rental. Good tenants are often hard to find. Who knows when a price boom will become a price bust? Is it really worth keeping the house on?

For most people the psychological importance of keeping on the family home ends when they finally go into care and accept their situation. However, the importance of the family home becomes the importance of protecting its value for their heirs. The deferred payment agreement does not achieve that. It is simply a repayable loan.

In some cases where a person lives with the would be resident who is not one whose occupancy gives rise to a disregard of the family home, then the scheme may have some value. It relieves the pressure upon the occupant to find new accommodation. However, even then the relief is only temporary until the 'exempt period' ends. Basically that is until the resident dies. Then the local authority can enforce its interest in the property unless some other arrangement has been made in the terms of the specific agreement. It remains to be seen as to whether or not local authorities will be able under the Secretary of State's Directions or their own policies to be flexible.

The proposed deferred payment scheme in detail.

The proposed section 54(1) states:- '(1) Where a person ('the resident'):-

(a)    is availing himself of Part III accommodation provided by a local authority, or is proposing to do so, and;

(b)   is liable, or would be liable, to pay for the accommodation (whether at the full standard rate determined in accordance with section 22(2) or 26(2) of the 1948 Act or at any lower rate), the local authority may enter into a deferred payment agreement with the resident'.

Four points may be made here:-

(1) 'accommodation provided by a local authority'. Does this section apply only to council owned homes where the local authority is truly 'providing' the accommodation or to the wider provision paid for through a local authority? Presumably the latter.

(2) 'the local authority may enter into'. The scheme is essentially not a compulsory one for either the local authority or the resident. Some local authorities may possibly choose to ignore its existence unless sub-section 2 is effected to make it compulsory upon certain terms from the point of view of the local authority. Also, it is clear that the arrangement is to be an 'agreement' between the parties. Either party, again subject to the operation of sub-section 2 on the part of the local authority, may not wish to enter into an agreement. It is not compulsory for the resident to agree to any proposed scheme put forth by the local authority. Care will need to be taken that an unwanted scheme is not agreed to as a result of 'over-ambitious' financial assessment forms provided by a local authority. Any suggestion of compulsion or of care only being available upon agreement should be rejected. Care cannot be made contingent upon such an agreement. The interplay between this scheme and the 'collection route' offered by Section 22 HASSASSA 1983 charges on property, which are placed where there is a default in assessed care payments due, may prove interesting. The offer of the deferred payment scheme may perhaps be encouraged along by the threat of the HASSASSA charge. The charge, as a means of enforcement, does not carry a loan facility although its effect may be similar. In any event, neither route has the advantage for the local authority of interest payments until the death of the resident.

(3) 'with the resident.' What about the situation where a resident is not mentally capable? Presumably a person acting under a registered enduring power of attorney or a receivership order may agree on the resident's behalf.

(4) The reference to the resident 'availing himself of Part III accommodation' restricts the availability of the scheme to those who are/will shortly be applying for local authority help with funding their care. The deferred payment facility is not available to a privately funding resident. An interest free loan from a local authority, based upon the value of an unsold property, might otherwise be an attractive payment option subject to the negative considerations referred to above relating to vacant properties. In effect, until a resident has run out of cash or other investments and is just left with the value of his property, the deferred payment scheme is not available to him.

The proposed section 54 (2) states:-

'The relevant authority may by directions require local authorities, where:-

(a) they provide or are to provide Part III accommodation for a person falling within subsection (1) ('the resident'), and;

(b) any conditions specified in the directions are satisfied; to enter into a deferred payment agreement with the resident.'

The Secretary of State for Health under the proposed section 54(2) can issue directions to require local authorities to provide the deferred payment facility, where the local authority is responsible to fund/part fund a resident's care, if the 'conditions' specified in the directions are met.

This section appears to the author to indicate a feeling that some local authorities might, if not required to do so, be reluctant to offer the deferred payment option to local residents. Perhaps they might prefer the 'collection' route offered by section 22 HASSASSA 1983 charges instead? Perhaps they might not want the administrative hassle of the scheme? Perhaps they did not really like the idea in principle?

Presumably the 'conditions' referred to will relate primarily to the willingness of the parties to agree terms over a particular property. The property would need to amount to suitable security. However, the conditions may also perhaps operate as a useful 'opt out' for any local authority faced with somehow 'unreasonable' demands for deferred payment. That might, for example, arise if unsuitable security is offered.

It should be noted that the 'conditions specified' are those within the directions and not amidst any terms a local authority might seek to impose as, for example, a 'standard contract'. Thus knowledge of the directions will be required of the adviser who feels his client would benefit from such an arrangement.

The proposed section 54(3) states:

'A 'deferred payment agreement' is an agreement whereby:

(a) during the exempt period the resident will not be required to make payment to the authority of any relevant contributions in respect of periods or parts of periods) falling within the exempt period, but;

(b) the total amount of the relevant contributions shall become payable to the authority on the date on which the exempt period ends, and;

(c) the resident will grant the authority a charge in their favour in respect of any land specified in the agreement in which he has a beneficial interest (whether legal or equitable) for the purpose of securing the payment to the authority of the total amount payable to them as mentioned in paragraph (b).

The definition of a deferred payment agreement restricts it to the making of loans fully secured upon interests in land. It is also restricted to land owned by the resident as the resident must, himself, be capable of granting a charge to the local authority. It cannot be granted by a resident over a trust interest or other interest which does not amount to his own property over which he cannot himself of his own volition grant a charge. In cases where there is net equity but another charge also exists arising from a mortgage or other lender, the local authority will need to check out the situation very carefully and bear in mind the rate of interest the commercial lender will be charging. That will be a first charge upon the property.

'Relevant contributions' means properly assessed contributions in accordance with the NA(AR) Regulations 1992 (see proposed sub-section 54(7)). It will behove upon the adviser to ensure that no client with a deferred payment agreement has a charge imposed upon him for an amount over and above that which he may be properly assessed. If the net equity falls towards the capital assessment threshold then the local authority will need to be informed to stop the fees covered by the charge eating into the capital allowance that may be retained by the resident. Advisers should also bear in mind interest accruals on any mortgage or other debt secured upon the property may have the same effect.

The 'exempt period' when no repayment has to be made to the local authority is defined in the proposed sub-section 54(4) as:

'…the period beginning with the time when the agreement takes effect and ending:-

(a) 28 days after the date of the resident's death, or;

(b) with any earlier date that, in accordance with the agreement, the resident has specified in a notice given by him to the authority for the purposes of sub-section 5(b)'

No repayment is thus due whilst the agreement applies when the resident is alive and until 28 days after death. The period of 28 days after death does not mean that there is no liability at death for probate purposes. It just provides a further 28-day interest free period. After the 28 days are up the local authority may obviously start to press the executors for repayment. The 28 days window will not generally be enough to allow a sale to take place. Thus the executors will need to take account of accruing interest in their calculations of payments due in the administration that they are responsible for. It is a reason to ensure a speedy resolution of the administration.

The proposed sub-section 54 (5) states that:

'…. The provisions of any deferred payment agreement and any such charge as mentioned in (3)(c):-

(a)Shall be determined by the authority in accordance with any directions given by the relevant authority; but;

(b)Shall secure that the agreement and any such charge may be determined by notice given to the authority by the resident on payment of the full amount that he is liable to pay, as mentioned in sub-section (3)(a) down to the date of the payment.

The local authority can only cancel the deferred payment contract with the resident as authorised in the directions of the Secretary of State. Once again the adviser must be aware of the contents of the directions so as to be on their guard against any actions by a local authority above and beyond their powers.

The resident can cancel the deferred payment agreement only by way of repayment once he has entered into it. They may also be able to do so under the terms of the directions of the Secretary of State but that will not be clear until they are issued.

The inability of the resident to cancel the agreement except by way of repayment may make the resident feel rather 'stuck' with whatever the local authority give him. That is not true as the normal principle of choice applies and the binding nature of the agreement must be subject to any normal breach of contract action in relation to the terms of the agreement and the care package supplied generally. The writer suggests that any care aspect of the overall agreement that is not fulfilled by the local authority may create a payment free and interest free interlude or a fee reduction to be accounted for appropriately. This amounts to a potential source of leverage against the local authority in the hands of the resident. If there is a breach of contract on the part of the local authority the author would suggest that the resident cannot be expected to pay for all or some of the services offered as part of the overall 'deal'. Clearly he should not pay for the element that is not provided. If the contract is breached more fundamentally then, although the agreement may end as a result of that, without any action by the resident interest should not run on the outstanding debt. That is because as a result of the local authority's action or inaction the contract is at an end but the 'exempt period' has not ended because the criteria of the proposed section 54(4)b have not been fulfilled. The resident did not end the contract. The local authority ended it. There is no stated end to the exempt period in those circumstances. Obviously the aim of both parties will be re-instate the agreement but negotiations may save the resident or more likely his heirs money in the longer term.

The proposed sub-section 54(6) relates to interest upon the deferred payment:

'(a) no interest shall accrue at any time on or before the date on which the exempt period ends in respect of any sum that he is liable to pay as mentioned in sub-section (3)(a); but

(b) as from the day after that date, any such sum shall bear interest at such reasonable rate as the relevant authority may direct or, if no such directions are given, as the authority may determine; and accordingly any charge granted in pursuance of sub-section (3)(c) shall secure payment to the authority of any interest falling due by virtue of paragraph (b) above.'

It should be noted that interest charges after death can eat into the capital value that would have been protected as being under the capital threshold whilst the resident was alive. Thus the author would reiterate his suggestion that the administration should be dealt with as quickly as possible.

New Announced National Care Home Standards

1.    The Care Standards Act 2000 (CSA 2000) comes into force from April 2002. The department of Health Press Release 2001/0112 on 2^nd March 2001 declared: 'The standards… will drive up the quality of care, increase protection of older people and guarantee consistent quality of care in care homes throughout the country'.

2.    The standards are to be welcomed in principle but the economics of enhanced care must be taken into account by the relevant funding authorities. Some care home owners might suggest the new standards are the final nail in the coffin of the private sector care sector. They were greeted by care home owners with some disbelief and black humour in a week that also contained the announcement of a rise in the national minimum wage of over 10% from October 1^st, 2001. The wage bill may already amount to as much as 75% of care home turnover in some cases. New local authority 'standard rates' rarely take account of this extra burden. One must also remember that breaches of the new Act can amount to serious criminal offences. The author would suggest that home owners may legitimately feel victimised both financially and socially.

3.    Some of the changes to the rules governing the physical environment of existing care homes will not take effect until as late as 2007. The author would suggest that, especially as regards former council homes, it may take much longer in reality. Some of the standards, especially the physical ones, may never actually be attained in practice.

4.    The full set of 38 standards are available from the Department of Health as 'Care Homes for Older People: National Minimum Standards' at www.doh.gov.uk/ncsc. The elderly client adviser would be wise to obtain a copy.