Long Term Care
This article appeared in the September/October 2007 edition of HomePlus.
For many elderly people, a move into a care home becomes unavoidable. The cost of such care is considerable, with annual fees reaching £20,000 or more in many cases. The Scottish Executive’s policy of paying for personal care has alleviated the problem to some extent. If the resident has a reasonable pension or other sources of income, he may be able to pay the fees from income alone. Others may not be so fortunate and may have to dip into their capital to fund their place in a care home.
We should bear in mind that currently only one in four people require to enter a care home during their lifetime and, of those who do, the average life expectancy is around three years. The drain on capital, if it takes place at all, may be short-lived.
Having said that, many people feel that they wish to pass on their often hard won wealth to their children rather than see it used to pay for their care, particularly when their fellow residents, who have not been able to save, have the same care paid for by the Local Authority.
In many cases, the elderly person’s main asset will be their home. Unless the home continues to be occupied by the resident’s partner or an incapacitated or elderly relative, the value of the resident’s interest in the house will be taken into account in the financial assessment which the local authority carries out. In many cases, this leaves the resident with little alternative but to sell their home and use the sale proceeds to pay for their care.
Are there any steps which you can taken to protect the family home?
Elderly people are often keen to give away their house before entering into a care home, usually by gifting it to a relative. However, unless the resident can give a very good reason for the transfer of the property, other than to avoid having to pay care fees, the local authority will take the view that the resident has deliberately deprived himself of capital. They will carry out the assessment as if the resident still owned the property. The resident might then be liable to pay the care fees but have no assets with which to do so. This can lead to an unpleasant “stand off” between the family and the local authority. The difficulty for Local Authorities is that, if the transfer has taken place more than six months before the move into care, they are not able to recover the property. The Local Authority can, however, seek to recoup any deficit from the recipient of the property.
This type of planning is obviously aggressive and there is no guarantee of success. Furthermore, the resident will be depriving himself of an asset during his lifetime. An outright gift to a relative is fraught with difficulties. The client might find himself in difficulty if the recipient dies before him, or encounters matrimonial or financial difficulties. For these reasons, a trust is often used. This gives the owner better security of occupation while he is still living at home. In addition, funds can be made available from the trust for the payment of fees or, indeed, the trust can be unwound, if the local authority considers that the resident has deliberately deprived himself of capital.
The insurance industry has developed various products to assist with care fees. Long term care policies can be taken out in advance to pre-fund the cost of nursing care. Immediate care plans are also available for those who are about to enter accommodation. An independent financial adviser would be able to advise on this type of planning and on releasing equity from the house to fund the policy if necessary.
There is no doubt that the value of an elderly person’s home is at risk where long term care is required. However, with some thought and planning, and a little good luck, the effect may not be as bad as many people fear.
Article compiled by Jacqueline Leslie
Posted by Sharon Clift on Sep 07, 2007
