Care fees and Asset Protection
Why planning for asset protection is necessary:
As the overall population of England and Wales ages, the beneficial task of protecting a client’s assets against fees for residential care will become more and more common. The most important asset to protect is generally the family home.
An elderly person considering a move into a residential care or nursing care home (the latter providing in-house medical services) could be in a distressed state. Moreover, if no financial planning has been taken prior to such an eventuality, time constraints may lead to rushed choices and associated stress.
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If an elderly person’s health is failing, their relatives may need to become involved in the decision-making process. This in turn could lead to some difficult issues for families, regarding the value of any inheritance versus the financing of expensive care fees.
Presently, the value of a person’s home is set aside for the first 12-week period after an elderly person enters residential care. However, this period is usually too short to arrange a sale if the cash is needed, especially during a recession.
However, if a client is enabled to plan in advance how they wish to deal with no longer being wholly responsible for their own personal care, they may look forward to their golden years with more confidence.
The costs of residential care and who pays:
Friendly society Liverpool Victoria estimates that the cost of residential care for an elderly person will reach £35,000 per annum by 2025.
Some elderly people remain eligible for fully funded residential care paid for by their local Primary Care Trust, but this is governed by local criteria and usually limited to those with substantial medical or social need. Alternatively, if a patient has been discharged from hospital, having been detained under section 17 of the Mental Health Act 1983, their residential care must be fully funded by the local authorities.
For everyone else in the UK, social care for individuals is means-tested by their Local Authority social services department. Eligibility for assistance is governed by the National Assistance Act (Assessment of Resources) Regulations 1992.
In the Spending Review undertaken in 2010, the capital limits for residential care charges were set out in Local Authority Circular (Department of Health) (2011)1, issued under section 7(1) of the Local Authority Social Services Act 1970. Although these capital limits were set provisionally until 2015, the Department of Health intends to reconsider them during the next round of Local Government Finance Settlement, scheduled for autumn 2012.
In practice, according to the current Charging for Residential Care Regulations Guides (CRAG) for England, Wales and Northern Ireland, those who opt for care in their own homes must pay the full cost if they have savings of more than £23,250. For those who choose residential care, they must pay the full cost if they have total assets of more than £23,250, including income, savings, investments and property (but not including life assurance or annuities).
There are different capital limits for Scotland.
Proposed policy changes:
In July 2012, the Government published the long-awaited social care White Paper. This constitutes the Government’s response to recommendations from the Commission on the Funding of Care and Support and the Law Commission’s Review of Adult Social Care.
In a bid to end national disparities about access to funding, the document contained proposals for a national minimum eligibility threshold for access to free social care. At the same time however, the time-frame for a decision on how to cap individual liability for care costs has not been specified.
The Government is also proposing that the elderly should be allowed to defer paying care fees until after their death, through applying for Government-backed loans. The loan would attract a nominal rate of interest, and would be repayable by relatives. It is expected the repayment would be made from proceeds of the sale of the deceased’s home. However, this proposal would not help the person wishing to leave their home for their relatives to inherit.
ASSET PROTECTION PLANNING FOR THE HOME:
If a person has entered permanent residential care, the value of their home will not be counted for the purposes of the Financial Assessment if the house is occupied by their spouse or civil partner; an incapacitated relative under 60 or financially-dependent child under 16. However, if a person’s partner has died, their home may be vulnerable to care costs.
Therefore, it may be prudent for a couple to change the type of ownership of their property, from Joint Tenancy (which is the usual method of ownership in younger years) to Tenants In Common. This strategy could also assist with Inheritance Tax liabilities. Becoming Tenants In Common would mean each partner would own 50% of the property.
The couple could then set up individual wills to bequeath their share of the property to either a Property Trust or a Family Trust. When one partner dies, their share of the property is left to the Trust, whose beneficiaries could be their children or grandchildren.
If the surviving partner wishes to leave the home to enter residential care, then their share of the home could be assessed for a contribution to care costs. However, if part of the home was owned by the beneficiaries of the deceased person, then it might be more difficult to realise any value by selling the property, because those beneficiaries could reside in the property. In which case, the property could be valued by the Department of Health as nil for the purposes of care fees.
Finally, an elderly person with a spouse or partner might be tempted to release some of the equity from their home to fund residential care fees. There are some schemes where the older home-owner’s partner or spouse could continue to live in the family home after they have moved into residential care. However the amount of interest on such a loan can increase rapidly the longer the elderly person lives, thus endangering the value of their asset for their inheritors.
It is recommended that an older home-owner obtains independent financial advice, as well as independent specialist legal advice, before signing an equity release contract. In addition, the home-owner should ensure the equity release company are members of SHIP (Safe Home Income Plans), a trade association whose guarantees surpass FSA regulation.
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