How to fund care home fees through investment
Andrew Dixson-Smith, Business Development Director of care fees specialists Eldercare Group, shares his advice for managing your parents’ finances to pay for their care bills.
The process of finding suitable care for a parent can be an extremely daunting prospect. Quite often, this process has to be undertaken at a time of crisis for the person needing care, so it’s not surprising that most people find this to be an overwhelming experience.
The added factor is that funding the cost of Long Term Care can be one of the biggest expenditures in a person’s lifetime.
At present, if your parents have assets above £23,250* (including the value of their home) they’re expected to pay for the full cost of their care. If your parents’ assets are between £14,250 – £23,250** (including the value of their home) they’ll have to pay for some of their care. The only support from the State is likely to be the payment of Attendance Allowance, for which the basic amount is £53 per week. With average care fees in private residential homes at around £675 per week, this still leaves a big gap to fill.
It’s now also becoming apparent that the government’s proposed Social Care Bill for 2016 will benefit very few people. Those of us with parents living in Scotland and Wales will need to consider the Government’s proposals on the Care Bill.
|* If your parents' assets are greater than:||** If your parents' assets are between:|
|England £23,250||England £14,250 - £23,250|
|Wales £23,750||Wales £23,750 - £23,750|
|Scotland £25,250||Scotland £15,500 - £25,250|
|N. Ireland £23,250||N. Ireland £14,250 - £23,250|
|They will have to pay for all their care||They will have to pay for some of their care|
So what steps can be taken to minimise the impact when the need for care arises?
There are currently no pre-funded products in which your parent can invest for care fees protection in later life. These products were withdrawn from the market a few years ago due to very low take-up by the public; mainly due to the high level of premiums required and a reluctance to place a big chunk of savings in a product which may never have to be used.
Personal Care Savings Bonds are now being talked about as a potential method of saving for future care needs, but again, to have any real impact people would have to be prepared to place their savings into a bond which can only be encashed to fund their care.
The conclusion is that the only real method of saving to offset potential future care needs may well remain the traditional ISA’s and investment products (at least these have the option of being able to use the savings for other circumstances which may arise).
There are, however, some important decisions which can be made leading up to the point of care, and when the need arises, that can help to protect your parents’ finances.
Leading up to the point of care, married couples should ensure that assets and savings are kept separately rather than held jointly. When the need for care arises, the State can only assess the assets held in the individual’s own name when looking at how much each person is expected to pay. Your parent’s partner’s assets cannot be included in this calculation. The State will however include 50% of any jointly held assets in the calculation.
As far as your parents’ property is concerned, this will only be excluded from the asset calculation if their partner, or a relative aged 60 or over, continues to live there.
Couples may wish to look at changing the ownership basis of their home so that it’s held as ‘tenants in common’ rather than joint-ownership. Although this no longer has any inheritance tax (IHT) benefits (since the government allowed a double IHT limit for married couples) this will give your parent the advantage of being able to gift their half of the property to you or other family members on their death, which would then exclude this half from being used for the survivor’s care fees. The pros and cons of this decision should of course be fully considered before making the change.
It’s important that any separation of assets (or gifts to family members) is made prior to the need for care arising, otherwise, the Local Authority will deem this to be a ‘deprivation of assets’ and will consider that your parents still own the assets which have been given away.
When the need for care arises, it’s important to seek advice regarding your parents’ finances from a specialist care fees adviser. They will give you and your parents all the guidance you need to ensure you can both make an informed decision on how best to cover the cost of care.
One important option is to consider the use of a Care Fees Annuity. The Annuity is purchased from an insurance provider, with a one-off premium and guarantees to provide a specific monthly payment for as long as care is needed.
The cost is calculated individually, based on your parent’s age, state of health and the level of monthly payment they need.
The Annuity is the preferred option for many people as it has the advantage of giving them peace of mind that the specified amount will be paid indefinitely, rather than paying the fees from a diminishing amount of capital, which could at some point run out. This can also provide the advantage of separating the assets between what needs to be used for care and what can be preserved for inheritance.
Also, if your parents do not wish to sell their property immediately, the adviser can help them arrange specialist loan facilities, enabling the property to be sold at a potentially more advantageous time, whilst still covering the cost of the care fees.
What happens if the money runs out?
Once your parents’ assets fall below £23,250 the State will carry out an assessment to determine if, and how much, they will pay towards your parents’ care. They will, however, only pay up to their ‘tariff’ amount, which is the weekly figure they would pay for a Local Authority care home.
This could be as little as £400 per week, so if your parents’ care fees are more than the amount that the State will pay, the options at that stage will be to either negotiate with the care home to accept just the level of the State fees from then on or for a family member to provide a ‘top-up’ payment to cover the difference.
If neither of these options is available, the only alternative may be to move to a Local Authority care home (which could be at a time when a move could be detrimental to the person’s wellbeing).
Without wishing to be a scare-monger, this unfortunately, underlines your parents’ need to remain in control of their finances for as long as possible, to ensure that the decision as to where they receive their care is not taken out of their hands.
Of course everything outlined in this article applies to you and your assets. You may think it’s too early (or too scary) to contemplate that you might need care one day and maybe you’re right. But it’s important to understand the intricacies of the care system and how to fund future care costs in order to safeguard your finances.
If you feel you would benefit from a free initial consultation or if you would like to receive a copy of a free information pack from Eldercare Group, you can contact them on 0800 082 1155 or visit www.eldercaregroup.co.uk.
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