As a Chartered Financial Planner, I’m spending an increasing amount of my time working with clients to help with care fees planning for elderly parents moving into residential care.
Make no mistake; care fees planning is a complex subject.
Often during first meetings with clients, I hear the same questions about care fees planning.
Here are 6 things you need to know about care fees planning.
Do get in touch if you have any questions about care fees planning. I offer an initial meeting which is at our expense and without any obligation.
1 – Care fees inflation is higher than retail price inflation
Residential care fees are expensive to start with, but typically get more expensive very quickly. This is because care fees inflation is usually much higher than the rate of price inflation we each experience during our working lives.
The long-term average for care fees inflation is somewhere around 5-6% per year. This quickly compounds and makes for unaffordable bills, unless you have factored higher inflation into your plans.
2 – You really need a Lasting Power of Attorney
This is an essential legal tool which allows you to appoint someone to make financial or health decisions on your behalf.
80% of people living in residential care homes have dementia, so the ability for a nominated attorney to make decisions on their behalf is really important.
A Lasting Power of Attorney is something you need to put in place before mum or dad loses their mental capacity; don’t wait until it is too late.
3 – There is financial support available
We are regularly surprised when people come to see us and they have not applied for the state support to which they could be entitled.
Attendance Allowance is paid at two different rates, depending on the level of care an individual needs. It can provide an additional £81.30 per week of tax-free income which is not means tested.
We find relatively few have heard about NHS Continuing Healthcare. This is often harder to qualify for, but can result in the NHS providing and solely funding a package of care in the home or in a residential care home.
Download a free copy of The Care Fees Planning Guide
4 – You won’t necessarily lose your house
A common fear of people who require long-term care in later life is that it will cost them their home.
However, if your spouse or civil partner, a relative aged 60 or over, or a disabled relative, or a dependent child under the age of 16 lives in the property, it will be disregarded by the Local Authority.
If your home is a part of the local authority assessment, they will offer a twelve week disregard period in the event that your property needs to be sold to fund care fees.
5 – An immediate care annuity can protect an inheritance
An immediate care annuity can be a very effective way to use capital to buy a guaranteed income for life, which is paid tax-free directly to the residential care home.
This income can be designed to increase each year in line with inflation and even provide a capital guarantee in the event of earlier than expected death. Because an immediate care annuity is individually underwritten, they often provide better value than expected.
Whilst primarily designed to give peace of mind that money will not run out and a move to a different care home will be needed, an immediate care annuity can also effectively ring-fence an inheritance for the next generation; something that many moving into residential care worry about.
6 – The Dilnot reforms will probably not save you money
Earlier this year we saw the introduction of the Care Act which is set to reform the delivery of adult social care. This Act also introduces the reforms originally proposed by Sir Andrew Dilnot in 2010, including a lifetime cap on care fees.
Regardless of other assets, once the lifetime cap of £72,000 has been reached, the state will pay future care costs. However, only the care element of residential care home fees will count towards this lifetime cap, with ‘hotel’ costs exempt.
Various studies have shown that these reforms are unlikely to save ‘self-funders’ any money as it will be many years before the lifetime cap is reached.
Download your free copy of The Care Fees Planning Guide
