How to collect your inheritance early

If elderly people offload their assets to avoid paying for care, why should the state pick up the bill?
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Mr D of Mid Glamorgan chuckles with satisfaction. He hasn't won a lot of money, he has given away a lot. It was partly generosity, but it was also revenge on the state for cheating him. He is one of the growing hordes of elderly people rushing to give away their assets to their children for fear that they will otherwise be stripped of them to pay for long- term care should they need to enter a home.

Mr D, 77, is not a rich man. He and his wife had a house worth pounds 44,000, which they handed over to their two married daughters two years ago. Mrs D is increasingly disabled and found the stairs difficult, so they applied to the council, which, astonishingly, gave them a council home for pounds 35 a week. Their daughters are selling the old house. This is modest wealth cascading down the generations, as promised by John Major.

Today the Law Society is sending out bundles of guidance to solicitors, inviting them to seminars on how to advise elderly clients who are queueing up for help in avoiding future care charges. Age Concern has been flooded with inquiries in recent months after news that 40,000 old people's houses have been seized by social services in the past year.

The law says that anyone with assets of more than pounds 16,000 will be charged fees for their residential or nursing home. The money is usually taken from the value of their homes. The wheeze of giving everything away in advance has to be well planned, and even then the law is far from clear. If social services smell a rat, they can accuse someone of having "deliberately deprived" themselves of their money in order to make a claim upon the state. If the money is given away six months before the old person goes into a home, at a time when they were reasonably fit, then they may get away with it. If not, the money can be reclaimed from the person to whom it was given.

The Law Society's guidelines tell solicitors that there is "no foolproof way of avoiding the value of the home being taken into account in means- testing. Generally, the intention behind the gift is the most important factor."

They warn that as local authorities discover this huge flight of capital from elderly parents to children they will get tougher. Under the Insolvency Act, the state can claim back money given at any time if the intent was to avoid paying.

Then there is the King Lear problem. Do you trust your children? Itching to get their hands on the money, they might decide that perhaps you would be happier in a nice, cosy old folks' home, so they can sell the house that is now in their name. The Law Society warns solicitors "to ensure your clients fully understand the risks and consequences" and to assess whether they are "subject to undue influence from family and friends". There have already been cases of bitter regret and family rows.

Mr D's motivation was mainly to ensure that his daughters got the benefit of his life's savings. But he also burns with political indignation. He used to be a minor NHS administrator. "I paid my taxes all my life and I expected to be paid for if we needed care," he says. "That was the deal. But they have shut down two hospitals in this area, with a lot of beds for the elderly, turning them out of the NHS to make them pay in private homes. I won't do it."

This is the grey rebellion that both the Government and Labour fear. "Can pay but damned if we will" is the new grey slogan. The law has not changed since the 1948 National Assistance Act, which said clearly that those who could afford it should pay for any non-NHS care. But two things have changed: the NHS has all but withdrawn from free long-term care; and at the same time many more old people have got rich. According to the General Household Survey, more than 60 per cent of households over 65 are owner-occupiers.

Afraid of the angry grey vote, politicians are rushing to find ways to protect the principle of inheritance. Frank Field MP has a scheme, and this week the left-wing Institute for Public Policy Research (IPPR) published a menu of plans with varying degrees of state subsidy.

The scale of the problem looks frightening. Average stay before death in a nursing home is two years, or three in a residential home, at a total cost of pounds 30,000 to pounds 40,000. The state's contribution stands at 1.8 per cent of national income, but by 2031 it will be 5 per cent - not a burden that taxpayers present or future will be willing to pay. So private cover looks like the only answer.

But is it? To pay into a fund over a lifetime would be exceedingly expensive. Younger people struggling with mortgage and family find a pension hard to pay. Care insurance would seem crazily irrelevant. And they would be right. Everyone retires, but only one in 20 old people ever goes into a home. The rest die in their beds or in hospital after a brief illness.

We are a nation of gamblers, and those are pretty good odds. Pay nothing and hope for the best. If the worst comes to the worst and you go into care, you will have to sell your home and you won't get to hand on your money to your children.

But do they really need it? They will probably be in their fifties, with most of their mortgage paid. So what do they need the money for, except luxuries? Old people remembering the hardship of their own earlier days often imagine their children worse off than they are. The money will usually go on foreign holidays and a better car, while the taxpayer picks up the care bill that the family should have paid.

If, like Mr D, you are angry with the state for failing to keep its cradle- to-grave promise, the other option is to spend, spend, spend. Blow the lot, cruise and booze, winter in the Costa del Sol, buy yourself a floozy or a gigolo, have fun.

That is, of course, antisocial advice. But many old people now rushing to their solicitors to divest themselves of their money should pause for thought. Why should the taxpayer fork out? It is no good whingeing about welfare state promises made 50 years ago. The state can't pay and that's that. Instead, remember that all life is a lottery, good health above all. Your children have a 19 out of 20 chance of cashing in when you die, but they could be unlucky. Tough.

This week's IPPR scheme, the most imaginative so far, would spread the risk among pensioners. On retirement they would surrender a portion of the value of their house (estimated at 45 per cent of an average home valued at pounds 60,000). The money would only be realised by the insurance company on your death, or if you went into a home - in which case the company would cover all your bills. The rest of the value would pass to your heirs. But at 20 to one, wouldn't the gamble be the wiser course?

Some 30 per cent of pensioners will always be poor, never having earned enough for a pension, let alone care insurance, so the state will always have to pay for them, one way or another. But the rest who have capital will simply have to pay up, if the fickle finger of fate points at them. Now all we need is for politicians of any party to be brave enough to stand up and tell them so.