Here we are at session number 29 , and we’re going to be talking about Long Term Care planning. Now, demographically, you wouldn’t think that many people needing care or thinking about it will be listening to a podcast, but you never know. If you’re over 75 and listening, please let me know; I’d love to hear from you!

Bu the care we need as we get older is a huge and growing issue. Like it or not, it’s going to affect nearly everyone listening to this show, either directly affecting them or someone they love. So in this show we’re going to cover the basics of how long term care works here in the UK at least, and as ever, we'll cover the steps you’ll need to take if you’re beginning to think about what all this might mean for you.

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Interestingly, I’ve learned a bit about caring for another person this week. Last Saturday my wife dropped a kitchen knife onto her foot and severed the tendon to her big toe. This required surgery and we spent all weekend in hospital. Since then she's been largely immobile as they have told her to rest it as much as possible to give the tendons time to heal. I've made more cups of tea in the last week than in my entire life beforehand! (I don't drink the stuff)

This week’s reviews

Two more 5* reviews this week, the first from Buzzdove, who says:

“[Pete is] doing what schools should do, explaining personal finance and life planning.”

I totally agree. The school system should be doing more. There is some good stuff happening with PFEG (Personal Finance Education Group) and they have got personal finance on the curriculum from (I think) 2014. But it will take a generation or two for those lessons to sink in and impact the financial health of the nation. In the meantime we have two or three lost generations who haven’t been taught the basics of money management. There is much more about this in Session 26

The next review is from BillB1815. He says:

“I can’t praise Pete highly enough for pursuing this project. I have only listened up to episode 10 so far. However, following Pete’s advice is already having a transformative effect on my finances. ‘Every £ is being told where to go.’ Very informative, accessible and enjoyable. I should have known all this stuff and been doing it before – but I wasn’t. I’m sure that this podcast is going to end up having a very positive impact on the financial lives of a large group of people.”

Wow, and wow. Thank you so much for those kind words. If I have an impact on one person, it’ll be a job well done, but it is amazing to me how much this is building. I will hit 1500 weekly downloads this week or next, and it is going up every week. When I add that up over say a year, it is a very large number of people. What a privilege to be able to serve you all, and thank you so much for lending me your ears!

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Introduction

OK, like I said in the intro, Long Term Care is a big deal. Don’t believe me? Here are some stats:

• The population of over-65’s is expected to grow by 50% over the next 20 years, about another 4 million people.
• The number of people over 90 is expected to treble over the same period
• In 2009/10, 31%, just under a third of all local authority spending was on adult social care
• One in five people over the age of 70 receive some form of care in their own home
• 750,000 people in this country suffer from dementia, and this is expected to double by 2050

I reckon these a pretty staggering stats, don’t you? The need for care is only going to increase, and with it the cost, which will of course be borne by the taxpayer.

In my experience, people in care are spending £600-700 per week if they are in full-time residential care. This can easily be double if you live in the south-east and are in a top-quality care home.

I often get asked about doing some planning to avoid paying for care fees. My response to this is always: “Why on earth would you want to avoid paying care fees?” If somehow you could arrange your finances such that the local authority paid for your care – you would be at the mercy of the authority who could put you in whatever home they saw fit and had a bed available. Wealth gives you choice – more on that later.

So let’s, as usual, look at what you need to KNOW first about Long Term Care planning, and then we’ll look at what you need to DO. Here we go…

Everything you need to KNOW

1 – Long Term Care Provision

It’s important from the start that we separate social care from medical care. Social care are your personal needs like food, shelter, assistance with the basics of everyday life, whereas medical care is self-explanatory.

Dealing with medical care first, this is provided under the NHS under a scheme called NHS Continuing Healthcare. It is a broad package of measures designed to help those who need ongoing care, but who are not in hospital. It can therefore be received at home or in a residential care home. It can include respite care, palliative care if your medical condition is terminal, medical equipment like respirators etc. It can even extend as far as paying for the cost of residential care home fees.

In order to qualify, your primary need must be medical, rather than social care. This will be assessed by the NHS, who will look at cognitive function, psychological and emotional needs as well as physical needs and mobility. The level and extent of the care provided depends on the outcome of this assessment.

Social care is provided by the Local Authority, and can include all sorts of different things from meals on wheels, short-term respite care, equipment like walking frames etc. It will help you in many ways before you get to the point of needing full-time residential care. Then of course when the time comes, the LA will provide a care home place for you.

The need for care is assessed by the Local Authority. They can and do charge for long term care provision, but they are not allowed to make a profit from it. Part of the assessment process is a financial assessment – let’s look at that now.

2 – Paying for Care -the assessment process

The Local Authority care assessment process has three possible outcomes: you need no care, you need full-time residential care, or you need care at home. If you need care of some kind they will assess your finances to see if you are able to pay for it. The procedures and rules for this are contained is a document called CRAG – the Charging for Residential Accommodation Guidelines.

Here’s the process of financial assessment:

1. The Local Authority will assess your care needs
2. They will determine the reasonable cost of that care
3. They will assess our ability to pay for that care
4. From that they will deduce the Local Authority’s contribution

Important Point: The person being assessed is the person going into care, not their spouse or their wider family.

When assessing your ability to pay, they start with the capital you have available, and two limits come into play: Lower limit – £14,250, Upper limit: £23,250. These limits work like this:

• If you have capital over the upper limit, you will be paying for your own care in full
• If you have capital below the lower limit, you won’t be asked to contribute any of that capital towards the cost of your care.
• If you have capital valued between the two limits, then you will be using some of that capital towards the cost of your care.

What is capital? Well, it’s everything you own, with certain things excluded, called Capital Disregards:

The first thing disregarded is your home or main dwelling, but only in certain circumstances:

• For the first 12 weeks of your care
• If the care is deemed to be temporary
• If you have a spouse or partner who lives there
• If you have another relative who lives there who is over age 60, or under age 16, or who is incapacitated.

Also disregarded are surrender proceeds of life insurance plans, and personal possessions. The life insurance plans is a useful little wrinkle in the rules. If you have investment bonds with life insurance companies, these are deemed to be contracts of insurance and cannot be taken into account when assessing capital.

My Great Uncle Cyril was a case in point here. All he had to his name was a few thousand pounds in the bank and about £20,000 in an investment bond. Combined, this took him over the threshold for paying for his own care, and the Local Authority assessor was inclined to include this bond in his calculations. Fortunately, my Dad mentioned this to me in a phone call and I was able to point out this exclusion. Without the bond included, his capital was below the lower limit so he didn’t have to make any capital contribution towards the cost of his care.

It’s important to be aware of the rules around deliberate deprivation of assets, that is, the giving away of money or property in order to avoid paying for care fees. It’s a question I get asked all the time. My answer is always that if you have money, why would you not use that to have the best twilight years possible? If you throw yourself at the mercy of the Local Authority, they can put you in whatever home they see fit. It might not be very nice, it might not be anywhere near your family. If you’re paying, you get to choose.

I understand why people ask this of course. They want to make sure their kids inherit something, rather than have their entire estate eroded by care fees. But you must be careful. The Local Authority can go back in time and check your transactions made. If you have (say) given away £100,000 to your kids within the last six months before being assessed for care fees, they can apply to have the transaction undone, or they will treat that sum of money as if you still have it. If the transaction happened more than 6 months ago, they will just treat it as notional capital, they can’t unwind the transaction.

The onus is on the Local Authority to prove that you did the transaction for care fees avoidance, rather than for some other legitimate planning reason, such as Inheritance Tax planning. So take care with any paperwork around large gifts in your later years.

OK, so what happens if you have capital between the lower and upper limits? The a system called tariff income comes into play.

If you go into care, the thinking is that all your income should be used towards the cost of care. This is to be your life from now on. The time for round-the-world cruises has gone, so your income will all be used towards the cost of your care. All? Not quite. You get to keep an amount of money called a Personal Expenses Allowance, currently £23.90 per week.

Now, for every £250 of capital over the lower limit, you are deemed to have £1 per week tariff income. Here’s an example:

Ethel needs long term care. She has £18,000 in the bank and £200pw income from pensions.

If the lower limit is £14,250, then the £18,000 she has in the bank is £3,750 over that lower limit, or 15 lots of £250 over. This means she has £15pw tariff income.

Say her care fees are £350 per week. Add to this her Personal Expenses Allowance of £23.90pw and Ethel needs £373.90pw to live

Take off this Ethel’s £200pw pension income, and the £15pw tariff income, and you get an amount left of £158.90pw which is picked up by the Local Authority.

Over time, Ethel’s money in the bank will be eroded and her tariff income will reduce accordingly. The difference will be picked up by the Local Authority.

So, all your income will be used to pay for care, and if there is a shortfall, the Local Authority will step in and cover it, depending on the level of your capital.

3- Long Term Care Products

There was a time when there was a thriving market in financial products which provided insurance to cover the cost of long term care. These were called pre-funded LTC products.

There were simple contracts of insurance – you paid a premium, you made a claim if you went into care and the policy would pay your care fees. There were also investment-backed plans, where you made a lump sum investment into an investment bond of some kind, and units in the investments were cancelled each month to pay the premiums of the insurance policy.

The problem was, care fees are expensive and can last a long time, and so the policies became more and more expensive until no-one was buying them.

So the only plans currently available are post-funded plans, I.e. Those that you might take out if you need your care fees covering now.

The first of these is Equity release, where you release money from the value of your home. This is a big enough subject to rquire its own subject which will be in a couple of weeks’ time.

The main one though is an Immediate Needs Annuity. This works much like a pension annuity (listen to session 14 for more detail on those) – you hand over some money in return for a guaranteed income for life. There are various options like having the income increase over time – very important as care fees only ever go in one direction.

An important difference between immediate needs annuities and pension annuities are that part of the income you receive is deemed to be return of your own money, and therefore not taxable. The older you are and the poorer health you are in, the greater the proportion of your income which is tax free. One fantastic option is that if you opt to have your annuity income paid directly to the care fees provider, the income is entirely tax free.

Now the cost of an immediate needs annuity depends on your age and state of health, as well as the options you choose, e.g. indexation. Usually, your state of health is assessed, including mental.cognitive impairment, plus your ability to complete so-called Activities of Daily Living or ADLs. There are:

• Washing
• Dressing
• Mobility (ability to walk)
• Transfer (say from bed to wheelchair)
• Feeding
• Toileting

How many of these you are unable to do for yourself will affect the cost of an annuity. The worse health you are in, the cheaper the cost will be

4 – State benefits

There are state benefits available to help those in later life. Any discussion about long term care is incomplete without covering these off. Time doesn’t permit me to go into much detail, so let me mention them to you, and then I’ll give you a great website to check your own entitlement

Pensions Credit – tops up pension to minimum of £145.40 for as ingle person and £222.05 for a couple

PC is means tested on capital, using the tariff income system. If you have over £10,000 in assets, you will be deemed to have tariff income of £1pw for every £500 you have in excess of £10,000. If the tariff income is more than the pensions credit, you simply wont’ get the PC.

There are two parts to the pension credit:

• • Guaranteed Credit – everybody gets this
  • Savings credit: designed to reward those who have saved into pensions and savings of their own

Two other elements: Disability element and Carer’s element – not going to go into detail

Carer’s Allowance – if you are caring for someone else. Must be spending more than 35 hours a week (full time) caring. Amount of carer’s allowance £59.75pw, plus it’s taxable. Not paid at all if earning over £100 per week. Can also interact with other benefits, including pensions credit

Attendance allowance – This is available to those over age 65, and who have been severely disabled for over 6 months. There are two rates depending on whether you need care during day or night, or both: £53pw, £79.15pw. If go into local authority funded residential care AA will stop after 28 days. Unless you are self-funding, in which case it continues. Neither taxed nor means-tested.

Personal Independence Payment. Under 65, severely disabled for more than 3 months, and like to need care for the next 9 months. Two components. Daily Living and Mobility, and each of these has a standard and enhanced rate. You’ll be assessed to determine what components you get, and at what level

Check out entitledto.co.uk or speak to your local Citizen’s Advice Bureau  to find out exactly what you are eligible to receive.

Summarise KNOW

OK, we now know who provides what care, and we understand the financial assessment process. We’ve talked about immediate care annuities and about the state benefits you may be eligible for.

Let’s now look at what you need to DO, right now, if you or someone you love is going to need care very soon

Everything you need to DO 

1 – Assess and prioritise your needs

When engaging in any financial planning, it’s important to consider everything ‘in the round’. By that I mean that all aspects of your finances should be considered together, as they are all intertwined in a complex way.

So for example, If you or someone you love is going into care, it is worth taking some time to consider the impact of the costs of care on, say, their estate planning. Do they still need that whole of life insurance policy to pay the inheritance tax bill, if their estate is likely to be eroded by care fees?

Have they made plans or promises to make gifts to people? This will certainly be impacted by needing care.

It may be that care is not needed imminently but may be needed at some point in the future. If so, then it may never happen, so plan accordingly.

2 – Get Wills and LPAs in place and up to date

I should have put this point first really. If it isn’t done yet, make sure that wills and powers of attorney are put in place as a matter of urgency. The reasons are obvious. If you’re going into care, you’re in the latter stages of your life and it may be that you will soon lose the capacity to handle your own affairs. Choose your attorneys wisely and make sure they understand what your wishes are by drafting clear legal documents. You should definitely use a solicitor for this – don’t get off the shelf forms and do it yourself; it’s too important.

I talked in much more detail about wills and power of attorney in Session 25

3 – If care is needed now – get things in order

If it looks like care is needed imminently, there will be a flurry of activity as things are put in place.

Firstly you need to make sure all benefits that can be claimed, are being claimed. Use the EntitiledTo website as a starting point, or head down to Citizen’s Advice or Job Centre Plus, and arrange for the relevant assessments to be made.

At the same time, depending on whether the need for care is medical or social, arrange for the relevant assessments to me done for care purposes too.

Once the cost of care is known and the level of income from benefits known, you can make the necessary financial arrangements to make things run smoothly. When doing this for clients, I often make sure that the first 2-3 years of care fees are invested in term deposits with banks, so they mature on time each year. The rest is often cautiously invested. Each client and case is different, so for goodness’ sake seek advice from a competent financial planner with experience in this area. There’s much more about finding a financial planner in Session 8.

4 – Consider your property

The person’s property is a vital factor in their planning as they need care. Here’s the sort of impact weak planning can have on things.

Let’s say that the wife of a couple goes into care, and their house is owned as joint tenants (they both own the whole property). We know that the house is disregarded for financial assessment purposes while there is a spouse living in it. But what happens if the husband dies suddenly? The property now belongs entirely to the wife in care with no spouse living in it any longer. So the value of the property is now a factor in the financial assessment. This could change everything as the funding from the Local Authority would cease immediately and the costs would need to be borne by the wife.

So be careful and try to think of all possibilities, and then plan around them.

5 – Beware Deliberate Deprivation of Assets

If I had a pound for every time I get asked about someone giving their home to their kids to avoid care fees… well, I might not be rich, but I bet I’d be able to buy something shiny for the wife!

It’s so tempting to try to game the system and preserve your capital by transferring assts to your kids or into trust to avoid the cost of care, but this rarely works. The Local Authority has sweeping powers to look back into the transactions you have made and if there is any suggestion of avoidance, they can just set those transactions aside.

Also, there could be other factors waiting to bite you, such as pre-owned asset tax, or more inheritance tax on your estate than you were expecting if your cunning plans are unwound by HMRC.

Please be VERY careful when making gifts, especially if care is likely to be needed in the forseeable future. Again seek advice from both a financial planner and a solicitor here.

Summary and Outro

OK, folk that was quite a long and wordy session, but I hope there was some useful stuff in there. As ever, you can leave any questions in the comments area below.

As ever, if you like what you hear on this podcast, please leave a rating or review on iTunes by going to meaningfulmoney.tv/iTunes. This helps others to hear about the show and to subscribe, because it keeps me near the top of the rankings.

I hope you enjoyed this session. Next time we'll be talking about the financial implications of divorce with my friend and expert in the field, Paul Gorman. If you have any questions about this, go to meaningfulmoney.tv/feedback and leave a voicemail

Thanks for listening – I'll talk to you next time