Long Term Care Planning
Taking financial advice before Entering Care

Entering Care

If you believe you may need care imminently, careful planning and professional advice can be invaluable in ensuring your needs are met in as sustainable and cost effective a manner as possible.  The field is complex and may well need referrals to multiple professional parties along the way.

The first thing to examine is whether your needs might be met in your own home if you would prefer this.  Grants or benefits may be available to help this happen, for example to modify your home to allow you to continue living there or to provide some form of assistance in the home.  We can discuss this with you and refer you to the correct professional parties to examine these possibilities.

If care in your home has been ruled out, choosing a care home must be considered carefully based on the facilities wanted or needed and also on the level of cost which can be sustainably met.  Your financial adviser will help you work out the numbers, but the choice of home will of course be a personal decision.

Who will have to pay?

The assessment of who will fund your care will be carried out by the local authority and in certain cases it may be prudent to speak to a solicitor.  We can introduce you to one who specialises in this field if necessary.  Ultimately this is a decision which we simply cannot predict, but there a
re some useful 'rules of thumb' which may give you a good indication as to whether you will have to pay for your care costs.  

Firstly if your need is defined as 'medical' in nature and falls under the remit of the NHS then your costs may be funded by the NHS directly.  Unfortunately this is not quite as simple as it may seem, as some conditions a layperson might assume would be classified as 'medical' may actually be classified as being due to old age. Alzheimers has been one such controversial condition.  Again if there is any uncertainty when this assessment is made we will refer you to a specialist solicitor.

Secondly if your condition is not classified as 'medical' and you have total assets of greater than a nominal sum it is likely you will be asked to pay for your care.  Most importantly this total asset value includes the value of your home, hence it can be necessary to sell your home to fund care if you have no other assets. If you're a couple and only one of you needs residential care then normally the remaining spouse would not be asked to leave to allow the house to be sold, however the cost of care can be accumulated and this debt would would be settled from the estate or from the ultimate sale of the house.  Owning your house as tennants in common may help to protect each spouse's 'half' of the house from the other's care liability - for more information on this, see our 'planning ahead' page by clicking here.

Funding your own care

If faced with the requirement to fund your own care we'd strongly recommend a review with a financial adviser to ensure this is done in as cost effective and as appropriate a manner as possible.  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 the standard you would choose.  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 client who will be paying for their own care our first step is to complete a factfind and calculate how much extra income they will need to meet this cost.  Any income, pensions or benefits (such as attendance allowance or similar) may be used toward meeting your care costs, as can the returns on any investments, properties or cash savings.  Once the shortfall is known we can then assess the suitability of solutions which may be appropriate to fund it.  We've listed some popular solutions here, but please note this list is not exhaustive and we strongly recommend taking advice before making any decisions.  There is no 'perfect' strategy - all the options have potential downsides.

Immediate Needs Annuities

Normally the first solution we will investigate to meet a long term care 
cost shortfall 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.  

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.  A 50-year-old in perfect health might be offered only 4% per annum of the cost price, whereas an 80-year-old in declining health might expect to get 20%, 30% or sometimes even 40% per annum.

The potentially high returns offered by immediate needs annuities make them very attractive and the ability to select an inflation-linked guaranteed income for life makes them potentially highly suitable for those who cannot afford to see their income fall or stop.  Additionally they can be very tax efficient, often being effectively tax-free when paid direct to the care home. 

There are risks with an annuity however, for instance there's the risk that the cost of care might increase faster than the annuity income, leaving you with a cost shortfall.  There is also the risk that you might not live long enough to see your purchase price returned, though some annuities do offer a guarantee of this, usually in return for a slightly lower income rate.  These risks
 need to be considered in perspective against your whole estate - clearly if an annuity can be purchased with part of your wealth to pay for care and hence safeguard the rest of your estate then some would consider these risks
 worth taking.  For example if your main priority is to protect the family home so it can be passed down to your children then buying an annuity with your savings to safeguard against being forced to sell the house might seem very attractive.  If you'd like to take advice on this, click here to contact us.

Investments and Savings

Annuities aren't the only option.  Savings and investments can produce regular dividends, income or interest to help fund care whilst avoiding the finality of spending a lump on an annuity, but all of these options bear different risks.  If you keep your funds as cash savings then you face the risk that the interest may not be sufficient to meet your costs and your wealth may erode year on year.  If you do manage to generate enough savings interest to fund care then it's unlikely your savings pot will keep up with inflation over time, meaning erosion of your wealth is ultimately likely.

If on the other hand you invest your money to produce an income then this may allow you to take advantage of the fact that investments have typically outperformed cash over the long term, but with investments comes higher risk and volatility.  Your income could fluctuate and if the markets move against you, your wealth could fall.  Arguably most people cannot accept high levels of risk when meeting care costs so if you wish to invest this needs to be planned and managed very carefully.

Guaranteed income investments may be a suitable 'middle ground' for certain clients, with the investment provider pledging to maintain the income payments for the rest of your life regardless of the performance of the investment funds.  For some these may be most suitable option to fund care as the income is guaranteed as with an annuity, but unlike an annuity they retain ownership of their funds.  However there is still the risk that the income may fail to increase in line with increasing care costs and that the capital sum may deplete over time if the fund performance is poor.

Clearly some people will prefer using cash or investment vehicles to annuities because they don't wish to sacrifice access to their funds.  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 or you are concerned about the loss of a particular cherished asset such as a family home then an immediate needs annuity may be a more suitable solution.  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 care.  The first thing to consider would be to rent out the home, though obviously this may not be possible if there is still family living there and some people will not feel comfortable doing this.   Secondly you may be able to release equity from the home to fund care with an equity release or 'lifetime mortgage' product.

Equity release is however a solution which 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 completely eroded away and nothing left to your estate when you are gone.  For more information on equity release advice, 
click here.

Taking Advice

Clearly, funding care costs is a complex area and making the wrong decision could have an adverse effect on your finances and your lifestyle.  The right combination of solutions may be complex and must take into account your precise circumstances, preferences and needs.  For these reasons a financial review with a qualified independent adviser is strongly recommended when entering care - your adviser will assess these areas with you and recommend the most suitable course of action in concert with other professionals as necessary.  Not only do we advise on long term care but we can also write Wills and Lasting Powers of Attorney as well as advise on your investments/savings and help you plan your estate.  If you would like to talk we'd be delighted to hear from you.

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.