Business

Peter McGahan: Long term care planning - and paying for it

How much might your care costs be?
Peter McGahan

I covered long-term care needs last week and thought I would focus on the methods of paying for care, and how much of your capital is included or disregarded if care costs are inevitable.

I’m always puzzled how after years of extraordinary advances in technology and efficiency that, after years of paying national insurance there seems to be reducing benefits.

Everything seems to cost nowadays. I used to park for free everywhere, now it’s a fortune.

Notwithstanding that, care costs can be painful, and if our dignity in our last days isn’t the most important thing to consider, what is?

Costs are interesting and not exact. The average cost of a local authority funded care home place was around £35,000 in 2019/20.

The competition and markets authority estimate that costs for those paying their own fees are 41 per cent higher than that. Around 10 per cent of people were expected to pay over £100,000 in fees, although that number is probably greater now.

There are some very detailed studies on life expectancy in and out of care homes with the most recent excluding ‘covid times’ showing that by year three, 21.4 per cent of community dwelling residents had died as opposed to 56.9 per cent of residents in a care home. Draw from that what you will, but the death rate has been increasing steadily over the years.

Either way, if we add the percentage who transfer out of care to the death rate, it comes to 73.9 per cent in 2015. I’m sure that number is significantly more now.

This is important in establishing how you can analyse how you might fund care costs.

If you pay into an immediate care annuity without any guarantees of length of payment after death, would that be better than just funding for care from your capital on a pay as you go?

It does seem more than unfair, having paid your way through the system you are now having to pay again and waste away all your life savings, so let’s see if all your money is included in assessing you for care?

Certain property is disregarded. For example, an investment bond with a life insurance element to it is disregarded. This is not true of all investment bonds, as those set up on a capital redemption basis have no life cover element (your independent financial adviser will guide you on that) and are not disregarded.

Also disregarded, is the family home during the first 12 weeks of care, life assurance policies, any personal injury settlements in trust or held by the court of protection, and any capital in an interest in possession or discretionary trust you are a beneficiary of.

If you have a home and your partner, spouse, former partner, or civil partner still lives there (except for estranged), your home will also be disregarded.

This is also true if a relative aged 60 or over, a child under 18, or an incapacitated member of the family lives in the home.

Naturally, you can see how taking that advice is important now before you might need any care.

A key reason for that is the rule in relation to deliberate deprivation of capital. If you transfer assets away and the local authority can challenge the motivation, this could be an issue.

It’s all to do with the motivation. Why did you move the money into an investment bond for example? If the authorities believed you believed there were care costs coming, and you then moved the capital, that would likely be defeated and the capital included in your assessment.

This is also true of putting capital into a trust for family, and naturally if the motivation was to reduce and protect the estate from care costs, it would almost certainly be defeated.

And so, early planning is essential to look at how you might deal with inheritance tax planning and rearranging your estate now for income and capital growth purposes, because whilst your motivation later may be correct, if it is too close to going into care, it may be hard to prove its validity.

Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial query, call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit wwfp.net.

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