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The Cost of Care

Since the 1950's the % of the population over 60 has continued to increase from16% to 21% last year. Also improvements in medicine and living and working conditions have seen the life expectancy of males increase to 81 years old and females 86.5. It is predicted that by 2031 36% of the population will be over 60.

The number of people going into residential care has increased with 1 in 3 women and 1 in 4 men needing care at sometime in their lives. A lot has been written in the press with claims of between 48,000 and 70,000 homes being sold to meet care costs.

Following the Dilnot Report the rules on care were due to change on 1st April 2016 but due to financial pressures this has not happened.

In order to establish if a person is eligible for financial support to pay for a care home, the local authority must first carry out a needs assessment.

When a person finds themselves in a position that they need care which is not met by the NHS, the Local Authority will need to assess the person's financial assets under the National Assistance (Assessment of Resources) Regulations 1992 (as amended).

Firstly, the Local Authority looks at the income of the person needing care. (This includes all income pensions, interest from investments, and any benefits that continue). The Local Authority will exempt £24.90 from the income and use the rest towards the cost of care.

If there is a shortfall they will look at any capital they may have (money in banks, investments, property, shares, vehicles etc).

Note the value of the principal residence is not taken into account for the first 12 weeks of a permanent stay or if the house is occupied by:

  • The spouse or civil partner
  • A relative aged 60 or over
  • A disabled relative
  • Child under 16 and the resident is liable for their care

Also personal possessions, surrender value of life insurance or business assets of a sole trader or partnership cannot be taken into account when assessing one's capital.

If the client has more than £23,250 then the Local Authority will not meet the difference in income and the client will be expected to pay the difference.

Where the client has less than £23,250 but has more than £14,250 the capital will be assumed to have an income of £1 for every £250 over the £14,250 and the Local Authority will pay the balance. At this stage top up fees may be required as what families often do not consider is when the local authority are funding care they will only fund to an amount after which the family may be required to pay top up fees. Instances when this might happen are if your relative:

  • would prefer to live in a room in a recommended care home or another care home that costs more than the council is prepared to pay
  • wants to live in a more expensive area to be closer to family or friends and this wasn't identified in the needs assessment
  • was self-funding but is now eligible for local authority funding and wants to stay in the same home, which isn't contracted to the council.

What can be done about it?

In some cases people have tried to gift their homes to their children. Not only does this have the following pitfalls:

  • Children can throw parents out of their own home
  • The house may form part of a divorce/bankruptcy settlement leaving parents vulnerable.
  • What if your child dies, your house could be owned by the wife/husband of your child.
  • There may be income tax payable to HMRC.
  • Children will have to pay capital gains tax when they sell the house.

The Local Authority can see the gift as ‚ÄúDeprivation of Capital‚ÄĚ and they can refuse to pay for care costs. Why else would you give your home away and continue to live in it.

What can be done through making a Will?

To make use of trusts for property protection both partners need to be alive. Unfortunately, too often we get calls from a single person wanting to protect their property by making a Will. The opportunity has been lost. However Will Planning will still not be effective if both clients need care!

First of all it is necessary to look at how you own your home. If you own it as joint beneficial tenants on death the property will transfer immediately to the surviving joint tenant. By severing the tenancy from joint beneficial tenants to tenants in common you both own half the house and you are free to leave it in your will to whomever you wish.

By including a property protection clause in your will you effectively can leave half the home to the children but grant the surviving spouse a lifetime interest in your half of the house. The property must be insured and maintained and the surviving spouse can downsize enabling the release of capital from their half of the house.

Case Study

Following the death of her husband Mrs Jones wants to downsize from the 4 bed roomed house to a flat. Mr Jones's Will left his half of the house to his children in trust but gave his wife an interest in his half of the house (In Property Protection Trust). The house sold for £240k and Mrs Jones wanted to purchase a flat for £150k. There are two options.

Option 1: To get the trustees to use the whole £120k of the children and put just £30k herself. (Ownership would then be 80% trustees and 20% to the surviving spouse thus generating 90k to do as she wishes).

Option 2: Have the reverse situation where the cash could be invested for the benefit of the surviving spouse as part of the life interest or released to the children.

Supposing Mrs Jones needed care.

Assuming she has little in the bank, has yet to downsize and suffers from a stroke, which means she now needs residential care. She is means assessed by local Authority staff. When they assess her home, half is in trust to the children. There is then the question of what is the value of her half of the house.

How much does it cost to have a PPT in your Wills?

It costs £425.