Care Homes Factsheet Download
Care Homes Factsheet
No one wants to go into permanent care and no one wants to have to sell their home and possibly spend everything they have ever worked for and their children’s inheritance on care home fees, and not everyone needs to do so.
The funding of care homes and preservation of assets is a very complex area. This factsheet is intended to provide some general information. As everyone’s circumstances are different we recommend that you make a no obligation appointment with a Willpower adviser to discuss your own individual needs with us. Please contact us.
Care in your own home
Most people want to remain as independent as possible for as long as possible. Sometimes this can be achieved by provision of care in their own home. The NHS and Community Care Act 1990 obliges Social Services Authorities to carry out an assessment of anyone who appears to be in need of community care services.
Once this assessment has been undertaken it should help explore a number of options, including staying at home, sheltered accommodation or care/nursing homes. The provision may include assistance with equipment to use at home and/or arranging for someone to assist in dressing, washing, showering/bathing, food preparation, undressing etc.
Whether the assistance has to be paid for will depend on how much capital and income that the person needing care has (excluding the value of the home). If the care has to be paid for then the person paying for the care will be able to choose who should provide the care and then make any arrangements.
Making these arrangements should delay the day when permanent care may be needed or may event prevent permanent care ever being necessary.
Care/Nursing Home Funding
The first question that needs to be asked is whether a person should have their nursing care paid for by the NHS. Only a very small proportion of people in nursing homes are fully funded by the NHS. To qualify, a person’s condition will need regular assistance from qualified health care professionals and the persons care needs will have to be unpredictable and unstable.
If the NHS does agree to fund someone’s care then their assets will not have to be assessed and they will keep their savings. Obviously this is the best situation from a financial point of view
The only downside to this option is that the person needing care (and/or their family) cannot choose the care home because will it be chosen by the NHS.
Where there is no NHS funding:
Before a Local Authority will agree to fund the cost of care, they will look to the person needing care to fund the cost of their care.
First of all they will assess their income. If their income is greater than the cost of the care then the Local Authority will require the entire cost of the care to be met out of their income. According to research by Laing & Buisson average cost of a care home is £548 per week in England and Wales. Most people are therefore unable to fully fund the cost of their care out of their income and therefore the Local Authority will look at capital assets to fund the shortfall.
When someone has assessable capital assets (including their home) which are valued at more than the upper threshold (£23,250 in 2015/16 for people needing care in England) they will have to pay all of the costs of any care.
When someone has assessable capital assets which are valued at less than the lower threshold (£14,250 in 2015/16 for people living in England) then the Local Authority will pay all of any shortfall – subject to the total costs of care being below a maximum amount that each Local Authority set every year. If a care home is chosen that costs more than this maximum sum, then any additional costs will need to be paid by someone other than the person needing care or their spouse (called a ‘3rd party top up’) and usually this burden falls on the children.
When someone has assets that are valued at between the upper and lower thresholds they will be required to make a contribution towards shortfall in the costs of any care and the Local Authority will pay the remainder – again subject to the Local Authority maximum and a requirement for a 3rd part top up if a care home which costs more than the Local Authority maximum is chosen.
When someone has assets above the upper threshold and those assets subsequently reduce to a value below the upper threshold, the Local Authority can be asked to complete a new assessment so that they start to part fund the cost of any shortfall, and similarly a new assessment can be asked for when the lower threshold is crossed.
If the person needing care has joint bank or building society accounts, for example with their spouse then one half of the value in the account is assessed as belonging to the person needing care – unless there is evidence otherwise.
Sometimes the home will not be taken into account. Whether the home is in joint names or in the sole of the person needing care, if their spouse or partner or another member of their family who is over 60 or under 16 or disabled continues to occupy the home the Local Authority will not be able to assess the value of the home.
There is also a possibility of using something called the deferred payment scheme. If this applies the home would not have to be sold immediately to pay for care fees, which would be paid by the Local Authority. The Local Authority would then have to be repaid the money it has paid out for care fees when the home is sold or within 6 months of the person needing care ceasing to need it. So this scheme does not avoid paying for care fees, it merely delays the point at which the fees become payable.
A final option is to look at an Immediate Care Annuity which will cover the costs of funding care in return for the payment of a lump sum. This is a bit of a gamble – if the person needing care dies fairly quickly, the annuity provider wins. But it does have the advantage that it caps the cost of the care and gives an assurance that something will be preserving to be passed down to family. Willpower can recommend an Independent Financial Advisor who is able to give advice on these schemes.
Protecting assets
A frequent telephone call that we receive in our offices is ‘I wish to give away my house to my children, how do I go about it?’ When asked the reason for the request, it’s usually ‘to prevent the house having to be used to pay for nursing care’. There are a number of reasons why this is not a recommended course of action.
1) Can you be sure that your children will look after you should the need arise?
2) The death, bankruptcy or divorce of any of the children could see their share in their house which you live in passing out of their control – prejudicing your security.
3) Your children will become the owners of a second home and will therefore have to pay Capital Gains Tax (CGT) on any increase in value between the date that they acquire it and the date when it is sold.
As we stated earlier, the average cost of care is £548 per week and according to the National Nursing Home Survey, the average stay in a care home is 2 ½ years – which runs up a total cost of over £71,000. So it makes sense to mitigate exposure to these costs if possible.
Deprivation of assets
When giving assets away, one has to be careful about a rule called ‘deprivation’ which states that if the need for care was foreseeable at the time of the transfer and if it can be proven that a significant reason for making the transfer was to avoid care costs, or if care is needed within 6 months of the transfer taking place, then the Local Authority has a right to assess the transferred assets as still belonging to the person who gave them away. The difficulty that many people who have is trying to convince a Local Authority of reasons why they gave their house to their children, given that it creates the problems outlined above – especially if they have continued to live in the house after the transfer has taken place.
Protecting assets - an option for couples
If the home is in the joint names of a couple there is an option to protect assets to cover the following situations:
- One spouse dies leaving all of their assets to the surviving spouse so that the surviving spouse now owns everything. The health of the surviving spouse subsequently deteriorates and they have to go into care. All of their assets will then be assessable to fund the cost of their care.
- One spouse goes into care and the other is still living in the home. As mentioned before, the value of the home will not be assessable because a spouse is living there. But if the spouse living in the home dies leaving all of their assets to the surviving spouse, who is in care, they will inherit all of the assets and the home will become assessable to pay for their care fees.
Couples concerned about this situation can include a trust in their Wills which, on first death leaves their share of the home into a trust called a Property Trust and potentially any savings in a trust called a life interest trust. The home and savings can be left into a combined trust called a Flexible Life Interest Trust. The provisions of the trust state that the surviving spouse can live in the home for the rest of their life (rent free!) and that they can sell the home and transfer the arrangements to a new property. Any money in the trust can be lent to the surviving spouse subject to a written loan agreement. The surviving spouse can then spend the loaned money as they wish. The surviving spouse therefore has all of the benefits of ownership of the assets in the trust(s) without actually owning them – and they have total ownership of their own assets, thus they are in the same position as if they did own everything.
Creating these trusts doesn’t fall foul of the deprivation rule since the person transferring assets is the person who has died – who obviously has no future need for care!! The surviving spouse, who may have a future need care hasn’t transferred any assets so hasn’t fallen foul of the deprivation rule.
Should the survivor then need care the following situation is created:
1) The loan of the savings from the trust to the surviving spouse is a debt which the Local Authority has to take into account when assessing capital, which has the effect of reducing the assessable capital by the amount of the loan.
2) The value of the share of the home of the first spouse to die belongs to the trust and therefore cannot be assessed by the Local Authority.
3) The Local Authority has to assess the open market value of the share of the home of the surviving spouse needing care. If the home is not sold (perhaps it can be rented out) it is possible to argue that the value of their share of the home is negligible – since nobody is going to buy half a house. It should be noted that a share of the rental income will be due to the surviving spouse and will be treated as their income which will need to be paid towards the cost of their care. It should also be noted that the ‘no value’ argument can’t always be guaranteed and that there have been cases where a Local Authority has made an unreasonably low offer to buy this share of the house. They do this on the basis that if the offer is declined, it establishes that the share of the house does have a value – and if it is accepted, the Local Authority pick up an investment in a house ‘for a song’, and the profit on its eventual sale will mitigate any costs for care that it has had to pay out.
Finally, it should be pointed out that if both persons need care then this scheme will not protect any assets because the trust is created in their Wills and therefore requires one of them to die for it to come into effect.
This scheme can only be instigated by a couple while both of them are alive and have the mental capacity to make Wills – as soon as one of them has died, this scheme ceases to be an option, so it’s best to do it sooner rather than later.
To make a no- obligation appointment to discuss this solution, please contact us.
Protecting assets - an option for everyone
For couples concerned that both of them may need care and for couples wanting greater assurance that any planning will be effective and will be effective in protecting all of their assets and for single people, the solution is to create a lifetime discretionary trust.
This involves the transfer of assets while someone is alive, but rather than transfer them to children, which has all the inherent problems previously discussed, the assets are transferred into a trust which has none of the inherent problems previously discussed. A trust is like a box which has a lid on it with a padlock. The assets sit in the box and the key to the padlock is held by a trustee – and the trustee is the person who creates the trust. The person creating the trust can therefore add and remove assets from the trust at will. So they have all the benefits of ownership, but technically, and crucially, they don’t own the assets. This means that if they ever need care in the future, the Local Authority cannot assess the value of assets not owned by them but owned by the trust. Couples can create a trust each and put their respective assets in their respective trusts – which means that if they both need care, none of their assets will be assessed to pay for their care.
There are other advantages in creating a lifetime trust:
1) On the death of the person creating the trust, the assets can be removed from the trust and distributed to beneficiaries nominated by the person who created the trust, without the expense and delays that can be associated with the probate process. It should be pointed out that many legal firms make big profits from administering an estate after someone has died and therefore are reluctant to recommend the creation of a trust – it’s bad for their business.
2) For people with contentious families, it removes the incentive to contest a Will if all the assets belonging to the deceased were not owned by them when they died, but were owned by a trust – therefore there is nothing to fight over as a trust cannot be contested!
The creation of the trust has the potential to be caught by the rules on deprivation, so will only be effective for sheltering setts from care fees if it is created by someone who has no foreseeable need for care and who does not go into care within 6 months of creating the trust , so it’s best to do it sooner rather than later.
To make a no- obligation appointment to discuss this solution, please contact us.
3rd party top ups
Many of our clients take the view that there is little point in sheltering their assets from being used to pay for care fees if it means that they have to go into a care home which costs less than the maximum funding limit set by the Local Authority or if it means that their children will be required to pay a 3rd party top up.
The brilliance of these schemes is that payments out of a trust count as a 3rd party top up. This means that trust assets can be used to meet the additional costs of a better home which costs more than the maximum payable by a Local Authority. While this means that some assets are used to pay for care, they are only being used to meet the additional costs over and above whatever is the Local Authority maximum – which has got to be better than having to pay for the whole of the cost of the care.
Funeral plans
Everyone needs to pay for their funeral and this usually comes out of the assets that are left in their estate after their death. For people who have ended their days paying for their care it means that whatever they have left is further depleted by the cost of the funeral. By arranging a pre-paid funeral, you pay for your funeral in advance, which means that when you end your days, not only have you saved your family the burden of arranging your funeral, but they don’t have to pay for it out of whatever has been left after your care has been bought and paid for. Willpower are agents for Dignity Pre paid Funeral Plans, the largest pre paid funeral plan provider in the UK. For more details please contact us.