Is trying to avoid paying care fees really wise planning? We clarify the position and point out the pitfalls.
We often receive enquiries asking us how they can avoid paying for care or avoid having to sell their house in later life should they or a partner need to be looked after in a care home.
Often these enquiries are fuelled by stories in the press or following discussions with friends. In this blog we will try and dispel some of the myths and simplify the legal position. All the while not losing focus on the often unwanted consequences that can follow from putting in measures to avoid paying for care.
It is worth remembering, first and foremost, that statistically speaking very few people actually go into a care home and of those that do, it is often for a short period of time at the end of their life.
Regardless of a person’s wealth or assets, this care can be fully funded by the NHS for those either:
- In extreme ill health, or
- Only needing care for a short period following a hospital admission whilst recuperating.
In addition, those in England who have under £23,250 in assets will not have to pay for their care.
However, for those in this position almost all of their income (typically a pension) will be taken to contribute towards the care costs, together with a further amount currently calculated as a sum of £1 for every £250 of capital assets over £14,250.
Once assets fall below £14,250 only income is paid towards care and capital is maintained for ongoing needs, subject to the “top up” exception below.
The remainder of the care is paid for by the local authority.
(The rates and rules in Scotland, Wales and Northern Ireland vary from England and tend to be more generous.)
Once these thresholds are explained most clients want a strategy to mitigate this which involves reducing their estates to such an extent that they have less than the £23,250 limit, meaning that on the off chance they do need to move into care they will not be funding it in full for long.
We point out that:
- Many assets are disregarded from the above calculations (including life insurance, and crucially property that is still occupied by certain relatives and some pensions).
- Care homes in the UK vary in standard and cost but can amount to £1,000 a week or more. A resident in a care home for 2 years would therefore end up paying £104,000 for their care costs.
However, when devising a strategy it is important to remember that just because assets may be less than £23,250 it does not mean the local authority will pick up the care home bill in full.
Local Authorities will only pay up to a set maximum amount, which differs from local authority to local authority. If a particular care home wants more than this then they can either:
- Ask the family to pay top up fees, or
- Eat into the £14,250 of assets (which would not last very long), or
- Insist on a move to another, more affordable but often lower standard, less luxurious care home, possibly in a location more difficult for family members to reach.
We often hear people tell us they have worked hard all their lives and do not want their money wasted paying for their care fees when this should be going to their family. We often feel obliged to advise that while that is undoubtedly true, this needs to be balanced against the possibility of having to live out your remaining years in poor conditions or in low standards.
A proper strategy for care fee planning therefore requires a consideration of the following:
- How long realistically and statistically speaking are you likely to need to spend in care?
- How much is your income alone and what standard of care home will this buy you?
- How much would you need to retain to ensure you can move to a more luxurious care home?
- Are there measures we can take to increase your income – such as purchasing an annuity or increasing pension contributions (in the case of younger clients)?
- Can we release equity from your property and purchase an annuity or alternatively financial product to ensure the remainder of your estate is kept intact?
- Do you have proper and considered Lasting Powers of Attorney in place that can enable your attorneys to implement plans or changes on your behalf?
We therefore strongly urge all those interested in saving care home fees to take proper professional advice from a member of Solicitors for the Elderly.
Finally, by way of a cautionary tale I wrote an article this week for “This Is Money” involving a scenario where parents wanted to sell their property to their children, for far less than its actual value whilst carrying on living there rent free. Part of their motivation was to avoid or limit potential care home fees.
The article highlighted that the pitfalls of this type of planning are plentiful and yet people often still move forward with these types of arrangements often against sound legal advice. It is worth a read!
You can also contact one of our other solicitors in the Wealth Planning team here.