A Guide to Wealth Protection: Care & Care Fees
Contents:
- Protecting Against Care
- Ways of Mitigating and Meeting Care Fees
- Trusts
- Enhanced Annuities
- Investment/Income Structures
- NHS Continuing Care
- Our Position
Protecting against care
The first thing to examine in this section is a non-cost factor. Surveys show the main worry people have in respect of future care is NOT cost.
The main worries tend to be:
- I don’t want to be a burden on my family
- I want to be somewhere nice and comfortable
- I want to stay in my own home
Therefore the key element is to examine how long term care costs can impact on these. If you have too much money (!) you probably can afford the fees, if you no money you probably have no choices. The fact is that most people sit somewhere in between these two positions. This is when the costs become a real worry both in terms of the money itself but also in relation to the sentiments as above.
An individual, age 80 for example, who suddenly needs care may require £40,000 per year – possibly out of the blue - to pay fees so that they are able to afford a comfortable care home and/or can avoid being a burden on their family. Let us say that the 80 year old is a widow with pensions of £12,000 per year and savings of £40,000 and a property worth £200,000; they will have limited ways of paying these fees without selling the home. And even if they do, then there is the prospect of the family having a rapidly depreciating inheritance, even if the lady herself does not need all the money in her lifetime. 10 years of care from this point can decimate the financial position for the family. This cost cannot be avoided by the family looking after her (i.e. to reduce or save costs) without upsetting her greater concern i.e. not to be a burden. She may well want better care than £40,000 per year will “buy” (depending on region and facilities care costs could be much higher). It is a desperate conundrum and one that nationwide is growing ever greater for more and more families. Care can wipe out a generation of wealth in just a few years and will do so unless some other key drivers are sacrificed or some other way of mitigating the costs can be found.
Ways of mitigating and meeting care fees
There are few ways of paying for long term care that are not covered by one of the following:
- from income
- from savings
- through insurance
- through support from the government, either local or central or both
Trusts:
The use of trusts is to help remove assets from an individual’s control which could, in the right circumstances, legitimately take them out of any assessment made by a local authority as to care fees. This is a complex area where rules around deprivation of capital need to be carefully considered. However, for many individuals moving towards retirement or already retired, the value of using trusts (see section below on trusts) is considerable and wider than simply care fees management.
Insurance:
Insurance is the “forgotten” route in the modern world. The Dilnot commission and its report on care in the UK could and should have found more reason to push insurance to the top of the list, it did not for reasons that were unclear. Although it could be because it was considered ‘take up’ would be poor. Insurance is often the best answer, however at the time of writing there are limited insurance schemes available.
Enhanced Annuities:
There are annuity (lifetime income) contracts available within the market which allow individuals to exchange a cash lump sum for a lifetime, guaranteed for life, income. Rates from such contracts can be very high (enhanced) for people with severe health difficulties which translate into shorter expected life spans. These can produce exceptionally high levels of guaranteed income and, as they are lifetime income plans, they can be ideal for people in care.
Investment/income structures:
For many people funding care fees can come down to working out how to balance income needs from their pensions and investments. This can often entail converting or rearranging investment portfolios and taking a completely different approach to the pre-care investing. The ability to make investments or savings last can vary from approach to approach. From the same pot of money different approaches and strategies can make years of difference in terms of how long income can be made to stretch and/or how much income can be derived from the same pot. The concept can be described as ‘decummulation’ – the means by which investments are ‘cashed’ and converted into income – this is an especially skilled area of financial planning and one which is particularly relevant where very high care costs have to be met from a limited reserve or investment fund.
NHS Continuing Care:
One of the cornerstones of paying for care could be support from the NHS, which is not means tested. This support is based on a health assessment. In simple terms if an individual is deemed to require their care due to health problems then the NHS will provide a level of funding support, which can be very significant. This is an area which requires careful appraisal and if you think this affects you or a family member it is one of those areas where you must take professional advice. The application and assessment process is convoluted and needs to be undertaken carefully, as the assessment will dictate the outcome.
There is a part of the legal industry that specializes in helping families recover money from the NHS which should have been paid but hasn’t. Recent legislation changes have restricted this back testing and recovery element. However it does evidence how many people “miss” this support. This appears to be for two main reasons:
- Individual’s requiring care or their families/friends/carers (i.e. those responsible for paying the fees or organizing the payment of the fees) don’t know about the Continuing Care support and never make an application.
- Individuals may go into care with their health position at a point where they would not qualify for support. Sometime later, maybe months, maybe years, their health has worsened and they could then apply. So when they start off in care they are not eligible for financial support from the NHS but later on, they are. Fresh appraisals are not made, again the financial support is not provided even though it could have been.
Our Position
The way to mitigate Care fees is to plan ahead. We believe where (or if) possible insurance is a key plank in any planning. If this is not available or feasible then the central way to mitigate costs is to see if finances can be arranged to maximize the passing of monies – maybe through trust arrangements – through to beneficiaries before care costs hit home. There is no possibility of siphoning money away leaving a local authority to pick up the tab, this is prohibited and we ensure that clients do not fall foul of the rules here. In many cases, probably most, the fees will have to be met out of income/savings. Again trusts can play an important role here in minimizing the wealth destruction. In addition the way that the income and savings arrangements are balanced and how the fees are paid can make a tremendous difference. We help clients structure their finances to their best effect in this regard.
We help suitable clients investigate enhanced annuities or their equivalents, income producing products which are available to those with poor health to get higher rates of income than normal rates. These can often help pay care fees at a much higher rate than any other income producing account or product. There is considerable evidence that we have seen which indicates that individual’s or their families are unaware of the availability of potential support from the NHS. This support is not means-tested. When we help individuals or families we can help with the process of identifying if NHS support is available either now or in the future.
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Readers should not rely on, or take any action or steps, based on anything written in these guides without first taking appropriate advice. Interface Financial Planning Ltd cannot be held responsible for any decisions based on the wording in these guides where such advice has not been sought or taken.
The information contained in these guides is based on legislation as of the date of preparation and this may be subject to change. We will aim to keep them up to date but inevitably there may be a time delay so current legislation should always be checked.
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