Long Term Care Planning
Advice for those in Care

Financial Advice for those in care

If you are already in care, careful planning and professional advice can be invaluable in ensuring your needs are met in as sustainable and cost effective manner as possible.  You may be anxious about the sustainability of your situation, the safeguarding of your property or the possibility that you may need to move to a different care home in the future - a financial adviser can clarify these areas for you and advise on the most suitable solutions to meet your needs.

If you are paying for care the first thing to do is to ascertain whether this should indeed be the case.  We can introduce you to a solicitor who specialises in this field if necessary.  As a general rule if you are in Wales and have assets (including your home) of greater than £22,000 in value and your need for care is not 'medical' in nature then you will likely be required to fund your own care.

  Funding your own care

If you are funding your own care we'd strongly recommend an annual review with a financial adviser qualified in this field.  Should you run out of money whilst in care the local authority would be expected to take over funding but it is quite possible that the standard of care they will pay for may be lower than you would select yourself.  For example there are growing occurrences of local authorities moving persons from one care home to another to save costs.  Political and economic pressures may increase these occurrences in the future.

When advising a person who is paying for the own care the first step is to complete a factfind and calculate how much extra income they need to foot the bill sustainably.  Any pensions or benefits (such as attendance allowance or similar) may be used toward meeting your care costs, as can the returns on any other investments, properties or cash savings.  Once the shortfall is known we can then look at which solutions may be most appropriate to meet it.  We've listed some commonly suitable solutions here, but please note this list is not exhaustive and we strongly recommend taking advice before making any decisions.

Some funding options

Immediate Needs Annuities

Normally the first solution we will investigate for a client in long term care is an 'immediate needs annuity'.  An annuity is something many people first come across when they retire as they may buy an annuity with their pension fund - you can think of an annuity as 'buying an income' for the rest of your life.  You pay a lump sum to a life insurance office and in return they will pay you a fixed or increasing percentage of that sum for the rest of your life.  If you're concerned about running out of money and being forced to move then an annuity can be a very suitable option as the income is normally guaranteed for the rest of your life.

When applying for an annuity the insurer knows that the shorter your statistical life expectancy the less they will have to pay on average, so if you are older or in poorer health the insurer will typically offer you a higher income for a given price.  Whilst a 50 year old in perfect health might be offered only 4% per annum of the cost price, a 80 year old in declining health might expect to get 20%, 30% or sometimes even 40% per annum.  The high rates typically offered to people who may be already in care can be very advantageous.

Additionally annuities can be very tax efficient, often being effectively tax-free when paid direct to the care home.  However the risks you take with an annuity are that the cost of care might increase faster than the annuity income and that you might not live long enough to see your money returned.  This needs to be looked at in perspective against your whole estate - for example you might buy an annuity with your savings to pay for care to reduce the risk that your house might be lost to care costs in the future.  Clearly  if an annuity can be purchased with part of your wealth to safeguard the rest then you might consider these risks worth taking.

Savings and Investments

Annuities are not the only option.  Any savings you have in place which can produce regular dividends, income or interest can help fund care - but the key thing to remember is that all of these things bear risk.  If you keep your funds as cash savings then you face the risk that the interest may fall and paying for your care costs may erode away your wealth.  Investments, whilst typically outperforming cash over the long term, typically show higher risk and volatility.  

Guaranteed investments may be available where the provider guarantees to maintain the income payments for the rest of your life no matter what the performance of the fund.  These offer some of the advantages of annuities, for instance the guarantee of income, without the irreversible sacrifice of a lump sum.  For some these may be suitable for funding care but there is still the risk that the income may not rise and that the capital sum may decrease if the fund performance is poor.

Clearly some people will prefer holding cash or investment vehicles to annuities because they don't wish to sacrifice access to their funds but the key here is to ensure that you only take risks you can afford to take.  For instance if you have strong pension income or substantial wealth assets then you may be better placed to accept the potential risk and volatility of an investment portfolio.

If on the other hand your assets are limited, if you are concerned about the loss of a particular asset such as a family home or if you are concerned about running out of money then an immediate needs annuity, if available, is likely to be more suitable.  If you'd like to read more about our investment advisory service click here.

The value in your home

If you own your home it is often possible to use it to generate income to fund your care.  The first thing to consider would be renting the home to make income directly, though obviously this may not be possible if you have family at home and some people simply will not feel comfortable doing this.   Secondly consider the options of selling or downsizing the property to release funds.  Although for a lot of people this will be undesirable it may be possible to use part of the sale proceeds to fund an annuity and therefore safeguard the rest.

If these options have been ruled out then it might be a suitable solution to release equity from the home to fund care - this is known as 'equity release'.  It's generally regarded as an option of last resort as it can have significant drawbacks and we strongly recommend you take advice if considering this area.  In particular, with some forms of equity release it's possible that if you're in care for a long time the value of the house might be eroded away and nothing left to your estate when you are gone.  For more information on equity release advice, 
click here.

Lasting Power of Attorney

We'd strongly recommend that all persons in care should consider taking lasting powers of attorney to ensure that the people who will make decisions for them if they are later unable to are the people they choose.

Although some might assume that our spouses or close relatives would automatically be allowed to make choices for us, this is not the case - if we do not make a Lasting Power of Attorney in advance it can be a lengthy and expensive process for our loved ones to gain control of our affairs.

A Lasting Power of Attorney allows you to grant the people you choose the power to make decisions on your behalf in certain circumstances. It can be flexible - LPAs can be written to allow multiple attorneys to act together, solely or in different capacities.  It can also limit the monetary amounts each attorney can deal with.

There are two different types of Lasting Power of Attorney - 'Health and Welfare' and 'Property and Affairs'.  You can read about each type on by clicking here.  We'd recommend that folk in care consider taking out both types of lasting power of attorney.

Next Steps

If you'd like to discuss your options, do feel free to contact us.

Telephone:   02920 009 479 
email:   enquiries@whitchurchifa.co.uk

Or you can message us from this website by clicking here.