Worried about long term care?
If you are worried about going into long term care, and you do not have a spouse or dependent relative living in your home, you will need to decide whether to sell it or to rent it. If you have gone into care and have lost mental capacity, your Trustees will need to make this decision for you. If the property is sold, the proceeds will continue to be protected within the Trust and can be invested and you will normally receive the interest or income earned on the invested capital.
Care Home Fees
Many people question why the elderly should have to sell their homes to pay for care and wonder whether it is possible to avoid care home fees altogether.
Proposed Changes in 2016
The Chancellor announced revised proposals for how care fees will be funded after April 2016 in his 2013 Budget speech. The headline announcement was that individuals would only have to fund the first £72,000 of social care and the limit of capital above which an individual would have to fund all care fees would be increased from the current £23,250 to £118,000.
On the face of it this is all good news but nothing will change very much – although the final small print has not been issued. The things to note are that the £72,000 cap only applies to social care – it does not include “hotel” costs such as accommodation and food, which can make up a large proportion of overall fees. Raising the capital limit may not have much impact (apart from local authorities having to pay social care costs over £75,000).
Bispham Legal Services have done some calculations for a person with an income of £250pm and capital of £250,000 (a house/flat in the South East, say) who goes into a care home and pays £650pw but the local authority will only fund up to a maximum of £540pw. Without going into the detailed calculations, the £72,000 cap will be reached after 5 years and it would take 25 years for the capital to be reduced to a level where the local authority will contribute towards other costs. The average stay in a care home is under 5 years. So the individual would pay the same in care fees as he would do under the current arrangements, i.e. all of his care fees, and the house would need to be sold to pay for long term care (unless it is rented out or other measures taken to protect it).
Long Term Care Rules (2015/16)
The rules governing long-term care costs are complicated and are interpreted in different ways by different Local Authorities. This section gives the general rules. Before going into care you (or your family) should seek specialist advice, which we can provide.
If you have to go into permanent care in the community you may have to pay for some or all of the residential costs. The Local Authority (LA) will carry out an assessment of your income and means. If your income is not sufficient to cover the residential costs (after allowing for a personal expense allowance of £25.50 per week) it will then assess your capital assets. If it assesses your capital worth to be more than £23,250 you will have to pay all the residential costs. If it assesses your capital assets to be worth less than £14,250 you will not have to pay any of the residential costs. If it assesses your capital assets to be worth between £14,250 and £23,250, it will assess you as having income of £1 per week for each £250 of assets between £14,250 and £23,250 plus your actual income (less £25.50 per week) and will deduct this total from the care fees and pay the difference.
A partner’s share of capital is not taken into consideration.
In assessing your capital worth, the LA will include anything you own that has a value, including, after 12 weeks of care, your (or your share of the) home (less 10% for notional costs of selling or the actual costs of selling, if the property is sold) and your share of any money in joint accounts (but not capital investment bonds).
However, if your partner (spouse, civil partner, “common law” spouse or same sex partner) is still occupying the house, the value of the house will be disregarded. Also, if a relative aged 60 or over, a relative who is incapacitated, or an ex-partner who is a lone parent or children under the age of 16 is still occupying the home, the value of the home will also be disregarded.
The LA cannot force you to sell the home and cannot itself sell the home in order to get its fees paid. However, the inevitable result may well be the sale of the home if any other assets have a small value. The LA also has discretion to levy a charge on the home if both you and the LA agree (in which case, on your death the home will have to be sold to pay the fees). The LA can even make you bankrupt to recover unpaid fees and the Trustee in Bankruptcy can recover assets given away up to 5 years before the bankruptcy.
What can you do to avoid having to sell assets to pay for care fees?
Giving a share or all of an asset to a child/children can result in difficulties because:
- Any one child could then force a sale of the asset.
- Child may divorce.
- If a child becomes bankrupt or has a county court judgement against them, the asset may have to be sold.
- Child may die first.
Care Fee Plans
These are insurance policies that pay out long term care home fees. They can be purchased before you go into care (and are not expecting to) called “pre-need” or once in care called “at-need”. Both types of policy are quite expensive and there is a limited number of insurance companies providing this product.
The cost of at-need schemes depends on individual circumstances but typically would be about 4 times the annual residential fee (depending on age and state of health).
Bispham Legal Services can write Protective Property Trust (PPT) Wills (with or without a Flexible Lifetime Interest Trust (FLIT)) for you and can provide Flexible Property Trusts ((FPTs) drafted by specialist solicitors) and introduce Independent Financial Advisors who specialise in long-term care fee plans.
Avoid selling assets to pay for long term care home fees
It may not be possible to avoid selling assets altogether but there are excellent ways that you can limit your liability. It is essential to have good independent professional advice before embarking on any course of action, which is where Bispham Legal Services come in.
General Discretionary Will Trust
Here the Beneficiaries can be a wide range of people but the Testator wants the Trustees to decide who should benefit and when. There may be certain criteria with which a potential Beneficiary must comply before the Trustees can award them any benefit (e.g. coming off drugs).
There are no Inheritance Tax advantages to General Discretionary Will Trusts and a General Discretionary Trust set up on death is treated like any other bequest and may be subject to Inheritance Tax at 40%.
It is usual with General Discretionary Will Trusts for the Testator to write a Memorandum of Wishes to his Trustees outlining how they would like them to act. The Memorandum of wishes is not legally binding but serves as a guide.
General Discretionary Will Trusts and Memoranda of Wishes are used in Sharia Law compliant Wills.
Life Interest Trust Wills
A Testator may want someone or a class of people to benefit from some or all of the Trust Assets whilst they are alive (the “Life Tenant”) but not to eventually be able to pass on these assets in their Will – typically on a second marriage the Testator may want their 2nd spouse to have the benefits of their investments but for these investments to eventually pass to the children from their first marriage (and that the 2nd spouse cannot pass them on to any of their children from any previous relationship).
Variations to these types of Trusts are to limit the period during which the Life Tenant can benefit from the Trust Assets or to allow the Trustees to give some of the Trust Assets to other Beneficiaries, and, in doing so, potentially reduce the income to the Life Tenant (these later Trusts are called “Defeasible or Revocable Life Interests”).
Defeasible Life Interest Trust Wills are sometimes used in Sharia Law compliant Wills to reduce IHT.
Defeasible Life Interest Trust Wills are useful in planning for long-term care.
Discretionary Trust (''DT")
It may be that when someone makes their Will they are not sure what their circumstances will be when they die and do not know whether long-term care or Inheritance Tax will be their priority (or even if a chosen Beneficiary will be disabled). The DT covers this situation. One of the Trustees will be the spouse or partner of the Testator. The terms of the Trust give the Trustees 2 years to decide who, from the listed Beneficiaries, should benefit from the deceased’s Estate. This can include setting up further trusts.
It is also important to note that the only service we offer is the writing of Wills and estate planning; we are totally focused under the Data Protection Act, so you know your information is fully secure and for each customer we also hold £2 million of indemnity insurance cover, for your peace of mind.
We also offer many other services that help protect children, parents and properties against state interference.
Need more answers? Contact Bispham Legal Services Today