Practical steps to consider for funding elderly care

Trying to make sensible decisions about how to fund care is very difficult, especially when you are having to deal with an emotional family situation

There are so many things to think about:

• which care home to use
• is a home the right solution anyway?
• whether to sell a house or not and all the stress connected with it

As a result, how to finance a stay in a care home is often left until last, or far too often not considered at all

New Government Guidelines on Care Funding

The government’s announcement in February 2013 on the future of funding care has at least given the subject some much needed media coverage with much discussion around the fact that care costs will be capped at £75,000 from 2017 and the introduction of a higher means test of £123,000

These proposals do help to avoid the catastrophic costs suffered by a minority of care residents

The detail of the new proposals is beyond the scope of this article but, given that the cap relates to the local authority’s assessment of the cost of the care element only and will therefore take many years to reach and the means test threshold is below the average house value, it seems that most people will still need to consider the financial aspects of moving to a care home

Six key steps to consider

The points below relate to those people that have assets above the current means test threshold of £23,250, and do not qualify for NHS Continuing Care

1. Gather all financial information together. This could include bank statements, savings and investment statements, details of State Pension and any benefits such as Attendance Allowance.
2. Check that all benefits are being claimed. Help with this can be found at agencies such as Age UK or Citizens Advice.
3. Add up all the income and consider any expenses that will continue to be paid in addition to the care home fees. This may include household costs if the home is being kept or whilst it is being sold. Also consider any personal expenses that may be incurred in the care home.
4. Look at the difference between income and expenditure – this is the shortfall that has to be covered from assets.
5. If there is a house involved consider whether you wish this to be sold or rented out. Take advice from an estate agent on any remedial work and if selling what price will achieve a quick sale, if renting what is a suitable level of rent? Bear in mind that if renting there may be periods with no tenant and it may be necessary to spend capital on repairs etc.
6. There are three main options for capital to help meet the shortfall. All have advantages and disadvantages, and no one route is the perfect answer for everyone

Deposit Accounts

 This involves placing all the capital on deposit, either all in an instant access account, or by using some fixed term accounts in addition as appropriate

Advantages

• This is the simplest option to understand and operate as funds can be transferred quickly and easily
• Capital is accessible depending on accounts used

Disadvantages

• Poor interest rates mean that capital can run down very quickly
• For large sums, it may be difficult to administer if you are trying to keep balances below the Financial Services Compensation Scheme limit of £85,000
• Stock market-related investments, such as unit trusts or other funds
• This involves placing a reserve amount of capital (say 12 months expenses) in a deposit account and investing the remainder with a view to receiving more income than on a deposit account
• Advantages
•  Potential for higher income than deposit accounts and possibly capital growth
• Disadvantages
• Investment values can fall as well as rise and as a result the benefits of extra income can be outweighed by falls in capital value
• An understanding of the risks involved with investments is necessary

Care Fees Annuity

This involves paying an amount of capital to an insurance company in return for a guaranteed pre-agreed income to a care provider for the rest of your ageing parent’s life

This is calculated after an assessment of an individual’s own specific circumstances and health.

Advantages

• Can provide a high and increasing income paid tax free direct to a registered care provider for life, however long that may be
• Can protect at least some of the available capital
• Can provide peace of mind that capital will never run out
• Will continue to be paid if your ageing parent qualifies for NHS Continuing Care funding or returns home, although a small amount of tax is then payable on each income payment

Disadvantages

• Large capital outlay at outset means that it can be poor value if death occurs in the early years
• Lack of flexibility – once purchased it is not possible to change the terms if circumstances change
• Income payments are fixed (or increase at a pre-agreed rate) and therefore this may not be a suitable option if care needs are likely to increase in the future, e.g. a move from residential to nursing care

These are just some of the options available, and in some cases a mixture of approaches is appropriate. It is very important that qualified and experienced specialist financial advice is sought at this stage to ensure an informed decision is taken. Suitable local advisers can be found on the Society of Later Life Advisers (SOLLA) website.

myageingparent has teamed up with Grace Consulting to offer you expert care advice

Grace Consulting provides affordable fee-based independent advice to help you choose the best care option to suit you and your relative’s needs and wishes. Our Care Advisers provide the knowledge and support you need to make the right decision for you and your family. myageingparent.com is partnering with Grace Consulting, the UK’s leading provider of personalised independent care advice, who, for over 40 years, has specialised in finding the best possible care for older people. Please note this is not an Age Concern or Age UK service.

Call now on 01483 209626 to get the help and advice you need at our preferential discounted rates

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Andrew Page is a Financial Planner at Ashcourt Rowan Financial Planning Limited www.ashcourtrowan.com. Andrew possesses a depth of experience in financial services. He has achieved the status of Chartered Financial Planner and Certified Financial Planner.  Andrew has specialist knowledge in helping people plan for the costs of Long Term Care, and advising the elderly in general financial matters and Inheritance Tax mitigation. He is a Later Life Accredited Adviser as awarded by the Society of Later Life Advisers (SOLLA) and is a member of The Society of Trust & Estate Practitioners (STEP). He regularly presents at seminars for existing and potential clients on this subject and has also commented regularly in the media.

Andrew can be contacted on 01225 475359 or by email to [email protected].