THE INVESTOR
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O
lder generations may
have heaved a sigh
of relief when the
government announced
a cap on long term care
costs. Experts, however, had a di erent
reaction as they could see many problems
left buried away in the ne print of the
legislation.What is clear, however, is that
the issue of funding long term care will
continue to evolve – and that families need
to keep watching developments, thinking
for themselves, taking advice and planning
ahead whenever they can.
A particular problem with the Care Bill
is that it can encourage people to assume
that all their potential long term care costs
are predictable and limited.The legislation
introduces a cap on costs – expected to be
£72,000 – fromApril 2016. Individuals
who pay that amount for nursing care in a
home will be absolved from paying more,
no matter how long they live.
However, the cap excludes
accommodation costs so residents could
nd that they have to pay around £12,000
every year just for their bed and board
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. In
addition, the cap is based on local authority
assessed needs, which many not be
anywhere near the cost of the care selected.
Evaluating the new law,Age UK says:
‘There is considerable “devil in the detail”,
and many older people and their families
will be surprised and disappointed.’
Tony Müdd, divisional director of the
St. James’s Place development and technical
consultancy, calls the law ‘a step in the right
direction, but arguably only a small step’.
At the moment, there are around
400,000 people in care homes for the
elderly or disabled – and about 58% pay
some or all of the bill themselves, according
to consultant LaingBuisson.
One piece of good news is that, while
people currently have to pay their care bill
in full if they have assets of £23,250 or
more (in England – levels elsewhere are
similar), that threshold is expected to rise
to £123,000 in 2017.
However, since few homes are worth
under £123,000, most homeowners will
still nd themselves drawn into
the net.
That said, the value of
that property is totally
ignored if the elderly
person’s partner – married
or unmarried – still lives
there.There are other
categories of relative
or dependant – such as a
relative aged 60 or more –
whose permanent presence in
the home takes the property
outside the funding calculation.
Where this is not the position,
a common tactic has been to transfer the
title of an elderly person’s home, while
they are well, to the children as another
way of removing the property from the
funding calculation.
This is not without risk, however, as a
child’s bankruptcy or divorce could see the
house being appropriated. Furthermore,
local authorities can also use their powers
under the ‘deliberate deprivation’ rules
to claim back assets that, had they not
been given away, could have been used for
care fees.
Solicitor Fay Copeland of Wedlake
Bell says that some authorities have been
slower to use these powers than others, but
adds that this ‘might change, going forward,
with much greater pressure on services for
the elderly’.
Nevertheless, some gifts to children –
especially those made several years before
– will go unchallenged since common sense
dictates that giving is part of a parent’s role.
Balance sheet
Families need to be constantly
thinking ahead and evolving their plans for paying
for long term care. The government’s recent
announcement of a cap in fees is a small step in
the right direction, but more can be done to help.
There is considerable
‘devil in the detail’,
andmany older
people and their
families will be
disappointed
So what are some of the options to meet
anticipated fees? One option with a home
that is empty is to rent it out and use the
proceeds to pay care fees. Sta ordshire
County Council, seen as one of the most
forward-thinking local authorities in the
care sector, encourages homeowners to
consider this and to plan ahead.
Of course, rental income needs to be
entered on a tax return and is subject to
tax.There are also void letting periods,
management fees if letting agents are used
and other administrative headaches
associated with renting. Many families that
do not plan are currently forced into rushed
sales of their parents’ properties.This will
frequently mean that they get a reduced
price on the sale.
Another area to watch is the
development of ‘immediate needs
annuities’ – plans which o er a xed
monthly payout for the remainder of the
person’s life.They do not cut the costs in
the typical case, but they o er insurance
against an elderly person running out of
money for care fees if they live longer than
expected.While the market is small, most
advisers believe that the Care Bill will help
stimulate the market and possibly see
further developments.
1 Age UK Care Bill memorandum, Dec 2013
HOME COMFORT
A route many families will opt for will simply be to sell the
elderly person’s house, invest the proceeds and use income (and
capital, if needs be) to pay the care home fees. London homes
were selling for an average of £475,000 last year
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– so could
well form the basis for paying care fees.The average return on
equities over the past 20 years has been 4.1%, according to
Barclays Capital, while gilts and cash have produced 3.5% and
1.3% respectively. Investing the proceeds of a house in a
balanced portfolio of assets could, therefore, go some way
towards paying the annual costs of a typical nursing home.The
extra could be funded from capital withdrawals, or other
sources like the individual’s pension or other savings and
investments. Remember, however, that the investment income
is likely to be subject to tax.
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