Long Term Care Costs
This article was published in HomePlus in July 2006.
This little piggy
We all know about the little piggy who didn’t get any roast beef. Homeowners today worry that their families will not get anything either if the family house has to be sold to fund the cost of nursing or residential care.
According to Age Concern Scotland, “Only a small proportion of people live in institutions (residential homes, nursing homes or long-stay hospitals). In 2003 only 4% (33,379) of older people aged 65+ lived in care homes”.(Community Care Bulletin 2003 – Scottish Community Care Statistics). So although the risk of needing full time care in a nursing or residential home environment is falling – previously up to a quarter of us may have needed such care – the issue is very important to those who are affected and, of course, we can’t predict in advance which of us it will affect.
Having worked hard to acquire a home, having maintained it and improved it and having seen it rise in value, it can be a distressing to think that it would have to be sold to pay for long term care, stripping you of the one thing that you thought you could bequeath to the kids to give them a solid start in life, an advantage which perhaps you didn’t have and which could be very important for them (especially as house prices continue to rise).
Is the picture really so bleak? Will the whole value of your house be swallowed up if you are one of the few who need care?
Consider the following:-
- The Scottish Executive will fund the personal care element of the nursing home fee, up to a maximum of £210 per week. This, together with pension income (both State and private/occupational), may cover the majority of the weekly cost, leaving a moderate shortfall to be met out of capital.
- Additional income can possibly be obtained from other investments; a switch to an income-producing investment can be sufficient to make up the deficit.
There will however be those who cannot afford the weekly cost from income alone and so must turn to capital assets – i.e. the house – in order to fund the cost. If there is no spouse still living in the house, then the house could be sold and the proceeds invested to produce further income.
All of the above concentrates on “self-funding” residents of care homes, i.e. those who do not qualify for assistance from their local authority in respect of care fees. To qualify for assistance, you must have less than £19,500 of assets (contributions will start to be made at this level and once capital falls to £12,000 or below, full assistance is available subject to a maximum figure).
The obvious thought arises that if you simply give away your assets – including the house – to someone else, say your children, then you will qualify for local authority assistance in respect of payment of care home fees.
There are a couple of flaws in that line of thinking, the first being that if such gifts are made for the purpose of avoiding care costs, you will be deemed to have deliberately deprived yourself of assets and will not qualify for assistance. The second is that you leave yourself virtually penniless and cannot continue with your normal lifestyle unless the person to whom you made the gifts pays your bills (this can’t be guaranteed!).
Such obvious gifting of assets to another person would also have implications for the calculation of inheritance tax on your death. If you continue to benefit from the asset – i.e. you continue to live in your house although you gift it to your children – you would be taxed on its value on death.
What can be done to protect your home against the possibility of being swallowed up by care costs? Sensible planning in early years can ensure that sufficient funds are available to meet the cost of care, whether through savings for this purpose or through insurance, leaving you free to bequeath the house to your chosen beneficiaries. A gift of the home, coupled with a move into sheltered housing, can be effective if you are willing to make that move.
Otherwise, for those of a gambling nature, you may care to rely on the odds of being in the majority who don’t need full time residential or nursing care!
For anyone considering the implications of care home fees and the effect on the ownership of assets, please seek independent legal advice from a suitably experienced solicitor.
Article complied by Elspeth Talbot
Posted by Sharon Clift on Jul 16, 2006
