Inevitably, where the nation’s health and diet improves, statistics show more and more of us are living longer. Whilst this is great for us generally, it means that we tend to live with ongoing conditions, and eventually we will all get frail. Whether down to chronic ill health such as multiple sclerosis or just simple old age, more and more of us need to think about the effects of long-term care on our finances.
This explanation applies to England and Wales only. Basically when we enter long term care, after 12 weeks in a registered home, the local authority will carry out a residential care means test. Simply put, anybody who has sufficient assets (more than the limits allowed), including property, is known as a “self funder”. In other words, will need to meet the entire cost of care themselves. Where your assets drop below this figure, the local authority (not the NHS) become at least part responsible.
If entering nursing care, there may be other benefits available such as attendance allowance and registered nursing care contribution, but each individual’s circumstance would need to be checked.
Where an individual has cash savings or investments, this is reasonably simple, but where the patient has a main residence it means this could ultimately be used to meet the ongoing costs. The local authority will not force a sale however initially, the costs are usually met via a “roll up loan” and a subsequent charge being placed on the property. The charge protects the local authority, as it is impossible to realise a house sale without the acting solicitor repaying the local authority first. In other words, an individual’s wealth will be reduced dramatically and quickly, given that care costs can exceed £40,000 per year. This will then have a dramatic effect on the value of the estate and what can be left for loved ones in the longer term.
One important point is that where you are paying for care yourself, you will have absolute control over which home and where it is, perhaps a short distance from where their children live. Whereas if the local authority is paying, they may cap the allowed payments and where the patient doesn’t have the ability to top these up may suffer the distress and disorientation of having to move home.
Some people come to us and have plans to divest (or give away) their assets in order to avoid these costs, perhaps by gifting away their property to a family member. Extra care should be taken, however, as this can have many unforeseen consequences. For example, I have seen cases where the son (who received the property) moved his girlfriend in and she and the Mum did not get on! Aside from these situations, the local authority has powers to act and recover the proceeds from the third party anyway. You can read more about it here: https://www.moneyadviceservice.org.uk/en/articles/means-tests-for-help-with-care-costs-how-they-work
The key is what the motivation was for the transaction. In other words, if a patient’s health was already deteriorating, and they were receiving care in their home for example, then it can be argued they could foresee the potential need for long term care. I.e.: deliberate deprivation. Where someone acted 5 years before requiring care, when their health was good and was acting on professional advice to mitigate inheritance tax, this is not deprivation of assets as they could not foresee the need for long term care. Sounds too easy. That’s because in this situation you have to have an IHT issue to begin with (i.e.: a remaining estate in excess of at least £325,000) so you would still pay for care anyway!
What can be done?
Planning ahead is crucial, and some providers are already offering insurance policies that will cover the cost of potential care. They are usually taken out many years ahead when long term care is not required and involves the payment of a lump sum. Typically, this may cost around £35,000. If care is ultimately entered, the insurer is liable for the costs.
Once the care need has arisen and the patient has entered a home, the most obvious is to source a strategy or financial product that will meet the cost of long term care. This can be provided using an “immediate needs’ annuity” on an “impaired life basis”. Basically, this entails paying a lump sum of capital to a life insurance company in return for a guaranteed income for life. Government regulations mean that where the income is paid directly to a qualifying care home, it will be tax-free. On average, it may cost perhaps £100,000, but this is entirely dependent on circumstances. Throw in the fact the plans can have additional features such as guarantee periods, and it becomes a minefield.
For property, using trusts can be effective (as a trust is a separate legal entity) however timing is critical due to the deprivation rules and also when placing a property in trust, retaining the right to live in the property without paying rent will likely prompt some serious questions about motivation.
In regard to investments, some vehicles such as “investment bonds” are generally disregarded in the means test. Again, the investment bond must be suitable in its own right and the motivation cannot be to deprive the local authority of funds for long term care.
At Financial Fortress we hold the CF8 qualification meaning we are able to advise in this complicated area and have years of experience. Your adviser will help both the client needing care and their families to navigate this area and make strong recommendations to address any shortfall. We understand the balance between providing a great care home environment and protecting the estate of loved ones.
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