It may not surprise you to learn the number of people writing wills in 2020 was 267% higher than the year before, according to media reports. This may be something you have seen first-hand as you work with clients, now eager to ensure their wealth and finances are in order should the worst happen.
Even so, there is still one aspect of planning for the future that fills most people with trepidation and, for that reason, is all too often overlooked: long-term care.
This has the potential to reduce your clients’ wealth significantly, which could reduce the amount they’re able to leave to loved ones when they die.
Read on to discover five important facts about long-term care and the impact it may have on your client’s wealth, including the dangers of breaching a little-known rule.
Before you do though, we need to look at the two main types of long-term care, which are:
- A nursing home: these use registered nurses as those staying in the home typically need specialist care, such as for dementia.
- A care home: these provide general care using care assistants, making them less expensive.
While your client may think prices for both of these are uniform across Britain, that’s not the case.
Where you live will determine how much your client pays
The table below shows the average cost of care across each region within the UK, ranging from £28,652 to £50,908 a year depending on the type of care needed and where in the UK it’s provided.
In addition, Which? also reveals that amounts vary within each region. For example, a care home in the south-east of England averaged £840 a week in 2019/20, while it was £582 in the north-west.
As the figures above include funding provided by local authorities, Which? points out that if your client self-funds to get better quality accommodation, for example, they could pay 30% more.
Your client’s finances will be assessed by the local authority
If your client goes into a home, their wealth will be assessed to determine how much they should pay and, if so, how much.
In some situations your client won’t have to pay, such as if they qualify for continuing healthcare (CHC) due to complex health needs, in which case the NHS covers the cost. In addition, if your client’s assets are below the limits set out in the following table, they probably won’t be asked to pay for their care.
Source: Money Helper (formerly Money Advice Service)
Here’s how the limits work:
- If your client’s assets are below the lower limits, they typically will not need to contribute anything.
- If your client’s wealth is between the upper limit and lower limit, they will need to contribute some of the cost. The local authority calculates how much.
- If your client’s wealth is above the upper limit, they will have to pay for their care.
Your client’s home may be used to pay for their care
What your client may not realise is that if they do not have sufficient cash or assets to pay the amount the authority asks for, the value of their home might be used instead.
According to a recent article, elderly people across the north-east of England owe £13.7 million in care home fees, which is expected to be settled through the sale of property including family homes.
This is because of the Care Act 2015, which allows authorities to use a “deferred payment agreement” (DPA), allowing them to claim back care costs when your client’s home is sold. While your client can use these agreements to fund more expensive care, it’s worth noting an authority can charge interest.
If your client tries to avoid care costs they may fall foul of a little-known rule
If your client tries to reduce their level of wealth by gifting money or putting assets into trusts, they could breach the little-known “deliberate deprivation of assets” rule.
This means a local authority can claw back any gift your client has made and include it in its financial assessment. As a result, your client may have to pay for their care.
This is a complicated area, especially as gifting is an effective way of dealing with an Inheritance Tax liability, so always recommend that your client speaks to a financial planner about their situation.
A financial planner can help your clients
One way a financial can help your clients is to assess their existing wealth. For example, they may have certain types of historic investments that the local authority cannot include in a financial assessment.
A financial professional may protect your client’s wealth using protection products that can help with the cost of care. While these are limited today, if your client goes into a home it may be possible to arrange an “immediate needs annuity”.
This will cover the cost of care for as long as your client is alive, which means your client’s wealth could be protected from additional costs if they live longer than expected.
Your client may also have a protection product already in place that could cover the cost of care, something a financial planner could confirm.
Get in touch
If you have a client making a will, or the relative of clients arranging a trust or power of attorney, we can help with any long-term care issues. Contact us by email on firstname.lastname@example.org, or call 01904 655 330.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Please note, this article only deals with England and our understanding of English Law.