As the soaring cost of care continues to dominate the press, legal expert David Edwards tells us what we should be thinking about when planning for care home fees and why trusts might not be the best solution.
Paying care home fees is front page news at the moment, a problem that will affect many of us, with 1 in 3 women and 1 in 4 men likely to need long-term care.
The Government has provided some information about proposed changes including a possible limit on the amount any individual has to pay, but for those individuals who are likely to move into a nursing or care home in the near future, those changes will not come soon enough.
We all know the problem; why should an individual spend their entire life savings on paying for care home fees when, had they not been prudent and saved, the state would have provided for them?
The first thing to remember is that the present rules are not drafted for any other reason other than to save the Government money. There is in no suggestion that the rules are fair or indeed framed to encourage Government approved behaviour; the so called ‘nudge’ theory.
The most talked about way of avoiding paying for care home fees is to put your house in to a trust. We are often asked whether these trust schemes ‘work’. In other words if you put your house into a trust and then go into a home, does the trust arrangement protect the home from having to be sold to pay the nursing home fees?
The important question to ask yourself at this point is why would you want to put yourself in a position where you are at the mercy of local authority care home funding?
While protecting the family home is no doubt an attractive idea for your children or other members of the family, for you, the person who is going into the care home, it may not be an attractive prospect that you have to spend your last years in a care home that is sufficiently mediocre for its fees to be within the local authority care home fee level.
No all care homes with fee levels under the local authority limits are bad nor are all the more expensive ones good but, as with most things, you usually get what you pay for.
Speaking for myself, I want to be sure that I retain freedom to choose the care home and the quality of the care that I receive, if and when I reach that stage in life.
To answer the question do ‘trust schemes’ work, then the answer is, it depends:
If the property is put in to a care home at a time when there is no prospect of care home fees being paid, then the arrangement may well be successful.
But if the local authority can establish that the gift into the trust was made for the purpose of avoiding contributions to care home fees, then they will make an assessment on the basis that gift has not been made. That will put the elderly person in the worst possible position; they have given away the property but will still be assessed by the local authority on the basis that they still have it. There are all sorts of time scales banded around, typically six or seven years, for the ideal gap between putting the property into trust and going into the care home for the scheme to work. But, as I have indicated above, is that really the right question to ask?
The better question, if you are in the happy position of being able to afford to choose the care home for you go into and the sort of care home and facilities that you would like, is how will your care home fees be funded?
In brief summary, there are six main ways of paying for care.
1. The deferred payment scheme. In this case the local authority meets the cost of your care but on your death that money is repaid. The local authority cannot, however, charge any interest during your lifetime on the monies they have spent on fees.
2. Rent out your property. If you have a property, it may be possible to rent it out and put the rental income towards the cost of care.
3. Equity release. It may be possible to release capital or income by using the value of your property. You will usually have to pay interest on any capital or income that you do release. Normally you have to repay the debt when you move in to a care home, so an equity release can be an attractive approach if you wish to be cared in your home.
4. Cash. You may simply put your capital into a savings account and then put the interest towards the cost of care. In most cases the interest will not meet the amount you need, so you may end up having to use the capital.
5. Invest. You could look to make your capital work harder in order to produce a greater return than if it were left in cash. You need to be careful to invest in the right sort of areas as not all investments are suitable for producing a regular income stream.
6. Buy yourself an income. You could use some of your capital to buy yourself a guaranteed lifetime income payable monthly tax free. This would help to solve the care funding problem as well as to protect your remaining capital. The amount of capital needed varies according to age and health and poor health can mean a better deal for you, so the first step is to find out the specific cost for you.
It seems that whenever elderly people are involved in money, there is someone ready to take advantage. So make sure you take advice from someone you trust and who is properly regulated to give advice in this difficult area and make sure that advice includes a check on whether you are getting all the benefits you are entitled to.
This is a general note to outline the options. As always you need to take advice specific to your individual circumstances before acting or omitting to act.
You should take financial advice from a properly regulated financial advisor. My firm’s associated Chartered Financial Planning Company DKM Wealth Ltd offers independent financial advice and is regulated to advise on care home fee planning. Readers of this blog article are welcome to a FREE initial meeting to assess what options might be right for them. We also have a FREE booklet that explains this article in more detail. Please email me on email@example.com for more information.
David Edwards is Managing Partner and Head of Private Client at Burt Brill & Cardens, a well-known firm of Brighton solicitors specialising in looking after people and their businesses. For more information about David or Burt Brill & Cardens visit www.bbc-law.co.uk