Care Home Fees and costs: Planning ahead

What plans have you got in place to protect you and your loved ones against the rising costs of Care Home Fees?

By Taylor Patterson.

With the impending changes in legislation via the Care Act 2014, many individuals are starting to put plans in place to protect against the rising costs of care.

What could be excluded from a local government care home fee assessment?

If ownership of an individual’s home is already converted to ‘Tenants In Common’ i.e. well in advance of any care home fee assessment, the entire value could be excluded from any care home means test.

Under a ‘tenants in common’ agreement at the time of first death, typically half of the property is passed in to trust for the benefit of another family member. If the surviving spouse subsequently requires care, they legally own only half of the property. The remaining half share won’t have a value as it’s unlikely that someone would purchase a 50% share in a residential property. The house value could therefore be excluded from a care means testing assessment.

In the event that both spouses were alive and one individual went in to care, local authorities cannot include the value of the house for care home means testing regardless of how tenancy is arranged.

Making gifts either outright or in to a trust theoretically results in the exclusion of this gift from any care home fee assessment. Gifting money in to a lifetime trust and surviving 7 years can protect assets from Inheritance Tax; a potential downside being that the individual making the gift can no longer benefit from the asset/s.

It could be valuable for individuals to hold on to any existing Investment Bonds i.e. spending other investments in the first instance. Investment Bonds are often excluded from a care home fee assessment.

Are these measures risk free?

No, the above measures come with a big risk warning.

‘Deliberate Deprivation’ laws exist to ensure that individuals do not abuse the system. Regulation is based around the ‘timing’ of the planning action taken and the ‘motive’ behind any action.

If an individuals ‘motive’ behind any care home planning measure was to deliberately reduce (deprive) the value of their wealth for care home fee assessment purposes and/or the ‘timing’ of any actions provides evidence that wealth is being deliberately reduced (deprived), local authorities can include the value of these assets for means testing purposes.

What are the risk free ways to plan for Care Home Fees?

Setting up a ‘Power of Attorney’ allows trusted individuals to make appropriate decisions re. health/welfare and/or financial decisions. Wise decisions can ultimately increase the sustainability of wealth.

With care home fee planning in mind, Taylor Patterson’s Strategic Financial Planning offers cash flow modelling in order that an investment portfolio can be implemented which focuses upon the sustainability of wealth.

In a poor interest rate environment, an investment portfolio could help cover care home fee shortfalls. Whilst investment portfolios should only be considered for a minimum term of 5 years, it is becoming more prevalent that individuals live in residential care for periods of time which extend beyond 5 years.

The Care Act 2014 proposes that everyone can take advantage of deferred payment schemes. Individuals will not be forced to sell their home to cover care costs until after their death. Therefore the main residence could be used to produce a rental income which could be contributed towards care home fees.

Individuals should take guidance to ensure that they’re claiming all benefits that they’re entitled to e.g. attendance allowance and council tax exemptions. This will help protect the individual from spending down their own savings as rapidly.

Individuals may be eligible for grants to convert their living space or get a contribution towards equipment that might allow individuals to remain independent for longer.

Given the proposed cap on care costs, individuals should consider an early local authority assessment. The calculation regarding the care cap doesn’t commence until individuals have been assessed as having met threshold criteria.

Individuals could pre-pay for their funeral. If assets reduce to £17,000 under proposals laid out in the Care Act 2014, individuals wouldn’t be liable to any costs. Buying a pre-paid funeral plan in advance means that individuals can always leave a net legacy of at least £17,000.

Final ThoughtWhen considering care home fee planning, individuals need to take all of the help, guidance and advice available. This could result in the sustainability of funds ensuring that people can leave a legacy for their loved ones. It will also minimise the risk of falling foul of deliberate deprivation legislation.