Care Home Fees - Should You Worry? Or Should You Take Action?
Should you worry about care home fees?
The cost of care is a major issue for many couples as they reach retirement and begin to have concerns about their health. Having worked hard all their lives and paid off their mortgage, parents often feel that it is very important to be able to leave a legacy of security for their children and grandchildren. But the fear is that the family’s assets, particularly the family home, can be swallowed up in care home fees, leaving very little behind for the next generation to inherit.
So, let’s face that issue head-on with a straightforward guide to everything you need to know about you potential future liability for care costs
How likely are you to go into care?
According to the Office of National Statistics, the average life-expectancy in the UK is currently 84 years of age. However, the average HEALTHY life expectancy is 76.
That means that the average person faces health issues in the final eight years of their life span. So, needing care in those final eight years is a very real possibility.
How much does residential care cost?
Currently, the annual cost of residential care is £40,000 on average. The annual cost is greater in a nursing home, and greater still in an EMI (Elderly Mentally Ill) unit for people with advanced dementia. However domiciliary care, where professionals visit you in your own home to meet your care needs, is much lower in cost.
For how long are you likely to be in care?
Twice as many women as men go into care, and on average they stay in care for twice as long. The average woman in care can expect a stay of four years duration.
When do you have to pay for all of your care?
You pay for your own care in full – i.e. you are fully self-funding – if you have capital assets (including the value of your home) of more than £23,500.
When does the council pay for all of your care?
The local council will pay for all of your care if your capital assets are £14,500 or less.
What happens if your assets are between £25,500 and £145,00?
When your assets are below £23,500 and above £14,500, the council will contribute towards the cost of your care on a sliding scale.
What happened to the Care Costs Cap?
The government was set to introduce a lifetime cap of £72,000 on the cost of care, meaning that nobody would ever have to contribute more than a total of £72,000 to the cost of their care over the course of their lifetime. The cap was to be introduced in April 2016, but it has been postponed until at least 2020, and the likelihood that the idea will be quietly dropped altogether.
How are you expected to meet the cost of care?
First, you are expected to use our monthly income, including your state pension and private pension, any investment income and any benefits you may be entitled to by reason of your disability.
If that is not enough to cover the monthly cost, you are expected to dip into your liquid capital i.e. your savings and investments, to make up the shortfall.
When your liquid assets are used up, you are expected either to sell your house to release funds to make up the shortfall, or to give the council a charge over your house.
If the council has a charge over your house, it will delay the sale of your house until after the end of your life but it will require that the care fees owed are deducted from the proceeds of sale of your house. Of the house is sold, all but the last £14,500 of the proceeds must be used towards paying what is owed.
Should you sign your house over to your children to avoid the house being assessed for care home fees?
This is a risky manoeuvre for two reasons.
First if it is clear that the main reason you did this was to avoid care home fees, you fall foul of an anti-avoidance measure concerning “deliberate deprivation of assets”. Put simply, if the council believes you got rid of an asset mainly to avoid its being taken account of in assessing your liability for care home fees, it will treat you as still owning that asset and will assess your liability to pay for care accordingly.
Second, if you give up ownership of your home in favour of your child, you lose all legal rights to your home. In the event of a misfortune befalling your child, for example if they get divorced or go bankrupt, or die, you could find yourself being turfed out of your home as a result of other people’s legitimate claims against your child.
Can you protect your house by putting it in a trust?
In theory, this is possible, but you run the same risk of falling foul of the “deliberate deprivation of assets” rule. The sad likelihood is that, in this age of austerity, with growing demand for council-funded care, councils are going to be under ever more pressure to make findings of deliberate deprivation. If they make such a finding, it is a fait accompli – they go ahead and assess your liability as if the home was still yours. The ball is then in your court to risk even more money on legal fees in challenging that assessment.
What can you do to plan for care home liability?
Other options to consider, with professional guidance from your Independent Financial Advisor or accountant are:-
- Generating income from your home by renting it out when you go into care. Your family can arrange this for you, but in order for them to do so, you will have to create a Lasting Power of Attorney in their favour while you are fit and well.
- Obtaining income or a lump sum from an equity release scheme relating to your home. Take very detailed professional advice about this first, and make sure you understand exactly what the scheme entails.
- Downsizing to a smaller home in order to release capital to pay for care
- Immediate Need Care Fee Payment Plans. Take advice about these plans from an IFA specialising in advising older people. Many such specialists are members of SOLLA, the Society of Later Life Advisors.
- Investing some of your liquid capital in Investment bonds. These are excluded from means assessments for care, but NOT if you have deliberately invested in them to avoid care costs
- Now that Pension Freedom is with us, you can, with appropriate guidance look at drawing down on your pension pot to pay for care
How can writing the right kind of will help?
The best estate planning strategy for protecting assets from erosion by care home fees is Severance and Equalisation, combined with Protective Property Trist Wills. This is a strategy that works well for couples, but not for single people.
The first step is to register the way you home is owned, as a “Tenancy in Common” instead of a “Joint Tenancy”. Most couples own their home as Joint Tenants, but that means their share of their home cannot pass through their will. Instead, converting ownership to a Tenancy in Common, creates two separate and distinct shares, each of which can be passed according to a will. This is done by “Severance” of the Joint Tenancy
The next step is to take all liquid assets, i.e. assets not tied up in land, and divide them into two separate funds of equal size, in each spouse’s sole name.
Third, a Protective Property Trust Will is created. When you have this kind of will, your half of the assets goes into a trust on your death, and is not inherited directly by your spouse. The Trustees, i.e. the people looking after the trust, make sure that your spouse can enjoy the assets in the trust without taking on official ownership. That way, if your spouse later undergoes an assessment for care home fees, your half of the assets are excluded from that assessment because they do not officially belong to your spouse.
Consequently, at least half of your family’s assets can be preserved to pass on to the next generation, without being eroded by care home fees.
If you would like to find out more about any of the points discussed in this article please feel free to call us on 0151 601 5399 or fill in the contact form below, for a confidential chat.
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