Many people worry about losing 40 per cent of their assets to the tax man when they die in the shape of Inheritance Tax. But few realise that they could lose their homes if they need long term care. This is precisely why, if you are embarking on an estate planning exercise, you should make a point of discussing the matter of long term care with your financial planner, as there may be ways of protecting your property, in some circumstances, so that you can still pass it on to your loved ones.
Care is known for being expensive. On average, a single room in a UK residential care home together with nursing costs can come in at just under £50,000 per year. Costs vary from one region to the next, and depend upon the type of care required. But the fact remains, it is not cheap.
Doesn’t the government pay for long term care?
Unfortunately, long term care is not something that the government will pay for, unless certain ‘care needs’ criteria are met. The reality is that most people end up paying for some, if not all, of their care costs.
A lot also depends on how much capital you have, in other words, your savings, and what your property is worth. If your savings and equity in your property amount to over the current threshold, then you will have to pay for your care. As of 2021/2022, the limit in England is £23,250. Also, if your capital sits between £14,250 and £23,250, then you will have to make a contribution towards your care, which amounts to £1 for every £250 of your savings between £14,250 and £23,250.
Only once your assets have diminished to less than £14,250, will the state fully fund your care costs.
Whilst there are proposals under the government’s Care Act legislation to introduce a lifetime cap on care costs, and to increase the threshold allowances, these are yet to be finalised.
What assets are considered against the long term care threshold?
All of your assets are considered, including your share of any jointly owned assets. Under the Community Care Act 1990, the local authority has a legal right to force the sale of your home to pay for your care costs, or to take a charge against the property to be repaid on its eventual sale.
However, if any of the following apply to you, then your home will not be included as part of the capital calculation when your care costs are assessed:
- If you have a spouse or partner still residing at the property
- If the property is occupied by a relative over the age of 60
- If a disabled relative lives in the property
- If you are responsible for a child under 18 who lives in the property
What’s more, if you hold investments jointly with your spouse or partner, then only half of those assets will be taken into account.
How to protect your home and other assets from be used to fund long term care costs?
When it comes to estate planning and long term care, it is probably best to start with the things you that you should NOT do, and that a professional estate planner would not recommend.
People often believe that transferring ownership of a home or other assets to their children or other relatives will prevent them being used to fund care. This is a totally unviable strategy, however, and the local authority will still enforce the sale of the assets even if they have been transferred, unless the exemption criteria apply.
The estate planning strategies for long term care that may be viable will depend upon individual circumstances, such as:
- Your age, marital status, lifestyle and future plans
- The value of your home, and whether it is mortgaged
- Whether you have any other funds or income available
- The proportion of your estate you wish to protect for your loved ones
Once your estate planner fully understands the bigger picture of your situation, they will be able to recommend solutions that suit your requirements. These may include:
- A lifetime trust to protect the home, or to protect death in service benefits, pensions and life assurances
- A will trust that protects your share of the family home, or that provides access to the home and the capital and income from other assets
- The Nil Rate Band Trust, another will trust but one that this time protects your Inheritance Tax-free allowance
Whichever solution you settle upon, the sooner the better is the best advice. Estate planning for long term care shouldn’t be something that is done as an emergency when a need for care arises. It should be actioned as early on as possible, otherwise there is the possibility that you may be accused of ‘deliberate deprivation’, which could lead to the local authority enforcing a sale of assets, regardless of the measures you have taken to protect them.
Tailored advice on estate planning and long term care from Partridge Muir & Warren
At Partridge Muir & Warren, we provide a respected and professional service in estate planning Surrey wide. If you are concerned about the costs of long term care, and how they could potentially eat into your estate, you are welcome to talk to us. We have an in-house team of legal experts, financial planners and tax advisers, all ready to provide you with the advice you need to protect your estate for future generations.
To find out more about how we can assist you with estate planning and long term care, please do not hesitate to get in touch.