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Care fees have become a much more mainstream issue in recent years.
Factors such as longer life expectancy, higher house prices and increased levels of home ownership mean that more people fall into the category of not only needing care in later life but having the assets to fund it.
Care fees can be a sensitive and emotional issue. Many feel it challenges the social contracts of the 1970s and 80s where home ownership was encouraged, with the promise that you could build an inheritance to pass down to your children. Many feel betrayed when now told they must sell the houses they worked hard for, to fund the same care that others, who did not plan so diligently, receive for free.
Types of Care
Care in your home –this is where you remain in your own home and receive regular care visits to help you maintain your own independence. Morning and evening visits are normal. You may also need to make adaptions to maintain accessibility.Residential care – a care home allows you to have your own room and benefit from on-site catering, social and care services.Dementia care – specialist care is needed for dementia sufferers and this is normally provided by dedicated facilities. Some residential care homes provide multiple types of care on different floors.
Nursing care – round the clock medical care can sometimes be required and this can be provided in a specialist nursing home rather than hospital visits.
Typical costs of care
Care in your own home – care at home is costed by the hour and the average rate is about £15.00. If you need two hours per day, seven days a week then that’s £210.00 per week, which is £11,000 per year.
Residential care – a basic residential care home costs approximately £600.00 per week, which is £31,200 per year. This can increase up to £1,200 per week which is £62,400 per year if you would like a higher accommodation standard.
Dementia or nursing care – Dementia or nursing care normally starts at £1,000 per week which is £52,000 per year.As you can see from these costs, it only takes a few years in care for your savings, pension and house equity to be eroded. Consequently, there can be very little passed to your family as an inheritance.
Who pays for my care?
Local authorities are responsible for administering the care system. The starting assumption is that you fund your own care, which may be subsidised by the Local Authority, or NHS for nursing care if you’re unable to fully fund it yourself. Any subsidy you receive is means tested based on your income and assets, including those you hold jointly with someone else.
You can apply for a Care Needs Assessment from the Local Authority, which identifies the care you’re likely to need. A financial assessment can then be conducted to assess what subsidy you may qualify for.
How does the financial assessment work?
Firstly, the Local Authority will look at your savings. This includes equity in your home unless your spouse, partner or a dependent under the age of 23 is still living there.
If you have over £23,250 in savings or available home equity you’re not entitled to any subsidy, irrespective of your income, and you’ll be expected to fund the cost from savings, equity and pensions.
If you have less than £23,250 in savings or home equity you may qualify for a subsidy depending on your income assessment. Any income you receive would be expected to go towards your care fees, although you are allowed to retain £24.90 per week as a personal allowance.
As an example, say you have £10,000 and a pension of £500.00 per week, and need residential care costing £600.00 per week. As your savings are under £14,250 you’re under the savings threshold and your income will be assessed. Out of the £500.00 you’ll be able to keep £24.90 per week, so will pay the remaining £475.10 per week towards your £600.00 per week care cost. The Local Authority will make up the difference of £124.90.
If you think only being allowed to keep £24.90 of your own money each week is unfair, it probably won’t help if we tell you that criminals in prison are allowed to keep more (£25.50 per week) of a personal allowance from any money they earn.
Deliberate deprivation of assets
Intentionally reducing your assets to qualify for a Local Authority subsidy is known as the Deliberate Deprivation of Assets and is the first thing the Local Authority will look for if you make a claim for a care fees subsidy. The Local Authority can claim you’ve deliberately deprived yourself of assets if you’ve given assets away when you’ve a reasonably foreseeable need for care. Deprivation can include gifting money, assets and valuables away for free, for less than their market value or increasing your living expenses above your normal level.
Note that there is no fixed time limit as to how far back the Local Authority can go when looking for the deprivation of assets.
If the Local Authority decide you’ve deliberately deprived yourself of assets, they’ll carry out the financial assessment with the assumption that you still have the assets you’ve deprived yourself of. Depending on how long’s passed since you gave the asset away, the courts also have the power to reverse the transaction.
One of the most common ways of unnecessarily incurring care fees is due to bundling up. This is where a couple arrange their Will so on first death everything passes to the surviving partner, with the intention that when they subsequently die it all passes to the children. However, where the surviving partner needs care, they now own not just their own assets but those of their deceased partner’s.
The combined assets are then used to fund one person’s care, potentially leaving nothing for the children to inherit. In essence, the assets of one person have been used to fund the care fees of the other.
Care fees planning options
Effective and sensible care fees planning is just about making sure you arrange your assets in a way that’s more beneficial to you and your family than the Local Authority.
Weird trusts and crazy schemes generally don’t work, and we don’t recommend them. By putting some thought into how you hold your assets, you can reduce the chances of unintentionally falling into a care fees trap and protect more of your assets for your children.
If you’d like to know whether care fees are something you should prepare for or would like to know how at-risk your assets are, get in touch on 01642 42 45 73 and we’ll chat through your options.
Please note: Tax and estate planning services are not regulated by the Financial Conduct Authority.