The number of Long Term Care enquiries has been climbing significantly over the last few years. As demographics change, we are all living longer and the strains/demands of modern day life certainly seem to be taking their toll on the quality of life that many have in their later years. Because this is a complex (and usually emotive) subject, financial planners have to hold a specific qualification to be able to provide advice on this issue. Keith Churchouse holds the qualification for Long Term Care (CF8).
Many enquiries we receive come from those who have received Power of Attorney (or Court of Protection Appointed Deputy) to care for someone's affairs, either financial or health related, at a time of need. There are two types of Lasting Power of Attorney, namely:
A good example of when advice is needed is when someone enters a care home because they are struggling to look after themselves through failing health. Of course there are other reasons to enter a care home, such as the social aspects of maintaining regular contact in a community. It is at this time that the issue of money and meeting the cost of care becomes very important.
The greatest concern (and responsibility) is obviously to meet the costs of any care provided to the person in your care to ensure they are comfortable. You may get some assistance towards costs, such as the Attendance Allowance. There are two levels of tax-free Attendance Allowance (Higher rate currently £83.10 p.w and Lower Rate, currently £55.65 p.w / tax year 2017/2018) and these are detailed further here (Attendance Allowance link)
If the total assets available (including the value of the home) fall below £23,250 (in England in tax year 2017/2018), your local authority may help with care costs, however the cover they provide may not be to the standard or in the location you would prefer. More details can be found here (Financial Assistance link)
Many of our clients and readers will be aware of the Dilnot report and its potential effects into the future. We have detailed the way this could effect this planning in our February 2013 blog here.
What can it cost?
In my recent experience, many are paying around £1,000 per week for their long term care requirements. It is this somewhat daunting requirement which places much pressure on those appointed as Attorneys to balance the budget in ensuring that any capital available, such as that released from a house sale, is planned carefully to ensure that care is provided both now and into the future. With inflation expected to remain higher than anticipated, it is also important to build increases in care costs into the financial planning undertaken.
Variations and the quality of a care facility
I am aware that care cost can vary significantly dependent on where in the UK the care is provided, and you might want to investigate this carefully. Others prefer alternative solutions, such as remaining in their own home, with care being provided there. Whilst assessing the facilities available in your area, you can also look on a provider's website to see the details of their last Care Quality Commission assessment and its outcome. More details of the work of the Care Quality Commission can be found here (Care Quality Commission link)
Existing income will need to be taken into account, such as that received from (as examples) State pension, private/occupational pension arrangements or investment income. The income tax charge made on this income will also need to be calculated to identify the net income available for care.
The nil rate income tax band increases with age (subject to limits), although the current government has indicated that the age related allowance is due to be phased out, and again this needs to be taken into account when planning for the provision of care fees.
Providing additional income from capital
One possibly simple way of achieving protection for someone who has recently entered care without any pre-existing protection, is to use an annuity to purchase income. This option has its security, but many find that the initial capital cost can be concerning. Each situation is different and the health of the person in care may well have a bearing on this decision. Another alternative is to generate additional investment income to help towards costs. This is likely to be subject to the Attorney's views on investment risk. There are many combinations of plans that can be used to create a suitable solution and the main key is to take independent financial advice as soon as possible to create a plan that can be implemented in a timely fashion to get care costs in check.
The Standard Financial Planning Rules apply
Emergency Deposit Funds
As with most types of financial planning (and planning for the provision of long term care costs is no different) I would recommend that you maintain an emergency deposit fund for the person in care. This should be a readily accessible cash/deposit type fund to meet any unforeseen costs that may occur. You can still use ISA allowances to enjoy tax efficient returns on cash funds, as an example.
Make sure there is a Will in place and that it is held securely for future reference.
I would recommend that records of costs, expenses and income are maintained and that any advice received is maintained and reviewed to ensure that the responsibilities of the Attorney are being met.
As noted above, long term care planning can be a complex subject. Conflicts may arise from other financial planning issues, such as inheritance tax planning (IHT), and some of the possible solutions that may be considered on their own or in combination of a few arrangements. All very interesting and thought provoking, creating a lot of opportunity to prepare and care for those needing this type of advice and help.
As you can guess, the costs of long term care can be significant and the provision provided by the state once an individual's assets have been eroded can be low. It may also reduce the choices available to you. Provision from the state will only start after an individual's assets fall below a current level of £23,250 (in England 2017/2018). And yes, your house value can count towards this (although it may be disregarded in the first 12 weeks of care).
It is this threshold that may encourage some to consider gifting away assets to a level where the cost of care will be met by the state, rather than at the cost of the family. As you can guess, any assessment for care costs will take this into account.
If a gift from the individual's estate is made within 6 months of the need for care, the gift is likely to be disregarded and added back into the assets of the individual for the assessment. Gifts made prior to this 6 month period may also be included if there was no obvious purpose to the gift being made. Inheritance tax planning may be a fair reason, but the gift away may be challenged if it is believed that the gift was made as a deliberate asset deprivation strategy.
There are a few example cases to reference these challenges and the way gifts (in the specific situations) were treated in each case and these are listed here:
Many new Attorneys/Deputies and family members find the prospect of financial planning to meet care costs a daunting task, usually because of the capital involved and the high income that needs to be generated to meet on-going care costs. Good quality advice is important in this instance, to ensure that income, and any shortfalls, can be understood and balanced and that this advice should be reviewed regularly.
Chapters Financial Limited can help you with this financial planning.
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No individual financial planning advice has been provided in the content of this web page. You should speak to your own independent financial adviser (IFA) or please contact Chapters Financial Limited on 01483 578800 who are qualified to provide advice on this important subject, which is growing in relevance.
For guidance and information purposes only and does not constitute advice or recommendation to invest. The value of funds can fall as well as rise. Please seek Independent Financial Advice before proceeding with any changes/new contracts. The Financial Conduct Authority does not regulate taxation advice.