Planning for care costs

Whether you intend to invest in the best of care in your old age or if you prefer to safeguard your assets for your family, Rose Phelps outlines the key considerations in planning for impending care costs.

In the 21st century, many of us will remain fit, active and fully occupied at work, at home, and in our leisure well past the age when our grandparents would have been retired, often accumulating more in savings and investments, especially in the value of our homes.

Some fortunate people can rely on generous pension provision or investment income to cover any care costs in full, if required. If this is the case, then your capital is never going to be vulnerable.

There are many more that face the situation where their income would not be sufficient to fund the full costs of care in the years ahead, but they own their homes and have savings or investments. There is a lower limit below which even relevant capital will not be required to be spent (£14,250 in 2012/13), and between that and the upper limit (£23,250 in 2012/13) some contribution will be required. Above the upper limit, all capital will be expected to be spent in paying for care.

Some people choose to spend their income and capital on paying for their care, perhaps enjoying a more luxurious standard than funded care would pay for, and why not? Advocates of SKI-ing (Spending the Kids’ Inheritance) may be as happy to spend their own money on luxury care as they are on cruises, learning to snowboard or Premiership season tickets.

Anyone who has a strong connection with another jurisdiction where care costs are fully or more generously funded, might wish to consider retiring there once their working life in England is over, rather than waiting till a need for care becomes apparent.

For the rest, and even for SKI-ers whose funds may run low, it is important to find out how care funding works, and to take advice and time to consider it well in advance. This provides an opportunity for financial and estate planning, and allows you to come to terms with the financial reality, while mentally and emotionally able to make decisions.

Many elderly people move into care, from home or hospital, in a crisis situation; a fall, sudden illness, or a domestic upheaval can catapult someone into care when they and the family are least able to grapple with important questions. In these circumstances you have a very short amount of time to get to grips with the system. Initially only the first 12 weeks of care are funded. Then, depending on your circumstances, certain periods in care are funded whatever your capital and income, for example temporary care. Where there are on-going health problems, the NHS may have to bear all or some of the care and nursing costs under Continuing Care or the Registered Nursing Care Contribution whatever your financial situation. There may also be social security benefits to claim, such as attendance allowance or carers allowance.

For many considering long term care provision however, if income is not enough to pay care costs in full, the question arises of what capital you are required to spend on care fees before public funding is available. You are notobligedto submit financial details to the local authority for assessment, even if you wish their assistance in finding care homes, so long as you are happy to take sole responsibility for paying the care costs.

Not all capital is relevant in the assessment. Certain types of assetmustbe disregarded, even your home in certain circumstances, depending on who is living in it. For example, if some or all of your capital came from a personal injury award or settlement, however long ago, it may have to be disregarded. Local authorities have discretion to disregard assets but in the current financial climate it is unlikely that they would exercise this option.

Local authorities may also agree to deferred payments, so that you can remain in your home while payments are rolled up, but are likely to require a charge over the home to secure the payments.

It is important that you take independent professional advice and do not rely on the local authority to give you the correct information, for example in some cases they have offered deferred payments when the property should be completely disregarded. The advice and planning should involve your solicitor, your financial adviser and your accountant and should cover not only care fees but the following issues too.

On the legal front you should review your will and how you own your assets now and at regular intervals. For a couple it can be sensible to provide that on the first death, the survivor does not inherit the deceased’s assets or share of assets outright, but on a life interest trust. This will preserve any inheritance tax exemption for the surviving spouse or civil partner while sheltering the trust capital from assessment. You may also want to make gifts in the will more general, such as gifting money rather than gifts of specific assets, which will fail if the assets have been sold in your lifetime to pay care costs.

If you own assets jointly with others, also take advice on recording who owns what proportion and whether or not to split them up now.

You should make a lasting power of attorney for your property and financial affairs, and register it now, so that your chosen attorney(s) can manage your assets for you if you cannot and can deal with care assessment and other financial matters in your best interests, or can help you to do so if you are frail.

You can also make a lasting power of attorney for your personal welfare so those you trust can make care decisions for you if you lose the capacity to do so. Discuss your wishes and preferences with the attorneys now. For example, do you want to stay in your home if at all possible with help coming in, or would you rather be in a residential or sheltered environment?

While you are mentally and physically fit, consider what gifts you would like to make now, whether outright or into trust. If the gift is made at a time when care is not on the cards, then local authorities are less likely to treat you as having “deprived yourself of benefit” to reduce the amount you would pay for care. Age is less relevant here than the state of your health. Attorneys generally cannot make gifts on your behalf.

Bear in mind that if the local authority do treat you as having deprived yourself of assets to avoid or reduce care costs, they do not need to get the assets back from the recipients, they will simply assess you as if you still had them and expect you (or someone else) to make up the care costs.

Do not rush into establishing an “asset protection trust”. These are widely marketed by financial institutions under a variety of names but they are not a panacea. By all means consider them, take full advice but consider the cons, as well as the pros, which can include a 20% inheritance tax charge now!

Take care to keep your personal, financial and legal planning under review and up to date. Care costs, the assessment system and the numbers involved can change rapidly and radically. Following the Dilnot Report, the Government has announced a proposed cap on contributions to costs of care and promised legislation in 2017 to put this in place.

The following links provide additional information:

http://www.ageuk.org.uk/home-and-care/care-homes/paying-for-permanent-residential-care

http://www.nhs.uk/CarersDirect/guide/practicalsupport/Pages/Chargingforcareathome.aspx

http://www.alzheimers.org.uk/site/scripts/documents_info.php?documentID=112

https://www.moneyadviceservice.org.uk/en/categories/long-term-care