Long Term Care
Long term care is the term given to long term care provided to individuals either in their own home, in community settings or residential care homes, either by family or professional carers to help with everyday activities such as eating, bathing and dressing necessitated because of chronic illness, disability or frailty.
As the cost of care home residence can easily be £500/week this can wipe out the value of life savings and assets very quickly, whether you plan for long term care in advance or require immediate funding from assets,understanding the complex issues surrounding this area of financial planning is essential
State Funding for Long Term Care
Social Services will only provide maximum long term care funding for those who pass a means test..
Those with combined assets and income (including any social security income support benefit entitled to whether being claimed or not) exceeding:-
England – £23,250
Wales – £22,000
Scotland – £22,750 (2010/11)
have to pay for their own long term care with the exception of any NHS Contributions towards long term nursing needs. So if you want to try and ensure such care can continue to be paid for, professional care fees planning will be essential.
Maximum Social Services Funding
Only those currently below:
England – £14,250
Wales – £22,000
Scotland – £14,000 (2010/11)
qualify for the maximum local social services budget, often known as the standard rate or contract rate. This rate varies from one local authority to another. This may not even be sufficient to pay for some local authority run homes. Even where you do qualify for the maximum local authority long term care funding, they will take all your income, bar your Personal Expenses Allowance (currently 20010/11, £22.30 per week in England and Scotland and £22.50 in Wales), away from you as contributions towards their funding. Those whose capital falls in between the upper and lower capital thresholds will have the value of any capital exceeding the Lower limits theoretically converted into “income” at a rate of every £250 worth of capital exceeding the lower limit, = £1 per week “income”.
This is then added to any actual income received or you would be eligible for, if you claimed it, e.g. benefits. The total is then compared to the actual cost of long term care. If your combined weekly income figure exceeds the cost of care, once again you would need to pay for your own care until your capital reduced to such a level as the “income” did not meet the cost of care. If the combined income, however, falls short of the required long term care costs, the local authority would fund only the difference.
So what do they include in assets and income?
Capital
All assets owned by the person needing care (not partners as well) and half of any joint assets including:
• Bank & Building Society Accounts
• National Savings and Premium Bonds
• Stocks and Shares
• Share in a Family Business
• Regular Savings and Investments including ISA’s (but does not include Surrender Values of Life Insurance and Single Premium Investment Bond)
• Financial Gifts made
• Your Home but not when:
1. A spouse or partner still lives there
2. A relative over 60 still lives there
3. An incapacitated relative still lives in it
4. A child under 16 still lives there and the person needing care is responsible for maintaining them (only one property can be disregarded under these rates)
Personal possessions are excluded unless believed purchased deliberately to reduce capital prior to an assessment.
Your local authority also has the discretion but is not compelled to disregard the home if it has now become the sole residence of someone who previously cared for you.
Even if the home does not qualify for one of these exemptions the local authority must disregard the value of the home for the first 12 weeks only after you remain in care for more than 6 weeks and care is deemed as permanent (or up to 52 weeks if temporary), but only if the value of other assets do not exceed £23,250 England and N.Ireland, £22,000 Wales or £22,750 Scotland (2010/11). After 12 weeks the house would be included in your assets.
Even during the disregarded period, the Local authority will still expect the person in need of care to make a contribution towards their long term care, based on their actual income and other assets. The Local Authority will also apply on your behalf for any state benefits to which you are entitled to maximize your actual income. It is only then that they top up the resultant income to their prevailing tariff rate for care in the area. The amount, the local authority contribution pays during this 12 week period does not need to be repaid, but once the 12 weeks have expired, if your savings including the house exceed the upper capital threshold you would be responsible for meeting the costs yourself. If the amount is less than the upper threshold you can apply for the Deferred Payment Scheme.
Paying for Care at Home
The financial assessment
If your social services assessment assesses you as needing care in your own home, a care plan will be drawn up and the local authority will offer you a financial assessment (means test) to see if they would pay for the care or ask you to pay for it. You can decline it although this could mean that you will end up paying for all of it.
Means-testing
In assessing your financial circumstances if you have more than £23,250 (England 2010/11) in capital (not including the value of your home) you will be charged the full cost of your care. (N.B. Your homes value is disregarded for domiciliary care but not if you have to enter a care home).
If your capital is less than £23,250 (England 2010/11), your income and any savings above the lower capital threshold (£14,000 England 2010/11) will be assessed but you must be left with at least the basic amount of Pension Credit plus 25%.
Capital between the Lower and Upper Capital Thresholds (£14,000 and £23,250 England 2010/11) is converted into tariff income at the rate of every £250 of capital between these two limits equal an extra £1 per week income.
The income of your partner or spouse and savings solely in their name is never included but half of any joint savings is counted as yours.
Please note: Unlike the means test for permanent residential care Local Authorities do have discretion to apply their own higher thresholds and you should check with your own local authority to see what they use.
Calculation
Income (including any tariff income) minus
- actual costs incurred on any rent or mortgage payments
- actual payments made for council tax
- an allowance for general living costs (Generally Income Support or Pension Credit entitlement + 25%)
This produces a disposable income. You may then be asked to pay up to 95% of this disposable income towards the cost of care, although should your care costs require less than 95% you will only be asked to use as much as necessary.
Direct Payments
Instead of receiving “arranged services” provided by your Local Authority your Local Authority has a legal duty to offer you (or a responsible person on your behalf) “Direct Payments” but you are under no obligation to accept them.
What are Direct Payments?
Direct payments means you are given a personal budget to select and buy your own services. You can request Direct Payments either when care is first required or instead of any arrange services you are already receiving.
If you are refused Direct Payments the reason why should be communicated to you in writing.
How much will you receive?
The amount you receive will be based on the amount of care you are assessed as needing (minus any contribution you are assessed as needing to make determined by the means test), see paying for care at home.
It is down to the local authority as to how much they pay you, however, they must pay you at least the equivalent of the reasonable cost for securing the services you need from the private sector. There is no upper or lower limit. In arriving at reasonable costs, allowances should also be made for an element towards recruitment costs, NI and Statutory Sick Pay and Maternity Pay as you will be responsible for employing your own staff or hiring an agency.
How frequently you receive payments will be decided by the Local Authority.
Can Direct Payments be stopped?
Even if you decide to opt for Direct Payments the local authority still has a legal responsibility to make sure your needs are being met. They can decide to stop Direct Payments at anytime if they think your needs are not being met.
If Direct Payments are stopped, your needs would then be provided by the Local Authority.
Your responsibilities
Whilst Direct Payments are designed to give you greater freedom and do not count as your own income for income tax purposes, they do place the following extra responsibilities on you or someone allowed to manage the money for you.
- You (or a responsible person acting for you) will have to account to the local authority as to how the money is spent.
- You will need to open a separate bank account and keep records.
If you use the money to employ someone directly to provide your services (rather than through an agency) you will also have employer responsibilities including:-
- Providing them with a contract of employment,
- Ensuring you pay at least the national minimum Wage
- Deducting the appropriate Tax and National insurance contributions and paying them to the relevant authorities
- Meeting health and safety standards
- Providing minimum holiday entitlements and finding cover.
- Ensuring you hold employers liability insurance and public liability insurances although the latter may be covered by your existing home insurance.
What can’t you use Direct Payments for?
In England and Wales you cannot use the money to pay for a spouse, partner or close relative who lives in the same house as you, to care for you unless it is the only suitable way to provide you the care and support required. This could be the case if you had dementia and would only feel safe with your spouse or partner. There is no such restriction if a close relative doesn’t live with you.
You also cannot use it for:-
- Services provided by the Local Authority or NHS,
- To pay for permanent care in a care home although respite care (up to a maximum of 4 weeks within any 12 month period).
Self Funding
Should your capital exceed exceed the Upper Capital threshold (£23,250 -England 2010/11) you will need to pay for your own care which could either be provided by the Local Authority or more likely by private carers.
One option which could be looked at, to help limit the total cost of such long term domiciliary care, is to purchase an immediate needs care fees annuity which would pay an ongoing tax free defined benefit to your chosen registered carer and would continue to pay even if you need full time care in a care home care.
Why consider care fees or long term care annuities?
Approximately one in three people will need long term care residential care at some stage in their lives and the costs can be high: According to A-Z Care Homes Guide, average weekly fees for residential care in the UK was £369 p. w. during 2009 increasing to £469 p.w. for nursing care. It also comes with the uncertainty of not knowing how long care will be required.
If you simply try to meet the cost out of savings, rather than a product such as a long term care fees annuity, there is a real possibility of money being seriously eroded or even a change in care required particularly if the person needing care lives longer than expected.
To help overcome this insurers have developed Immediate Need Care Annuities (also referred to as Long Term Care Annuities).
What are Care Fees Annuities?
In return for giving a long term care Insurer a single premium, an immediate care fees annuity (sometimes referred to as Immediate Needs Annuity) guarantees that the insurance company will continue to pay the insured income directly to any registered care provider tax free for the rest of the persons life, giving you more certainty that their care can continue unaffected no matter how long this turns out to be and that money will not run out. An assessment of the difference between the cost of care fees and the persons ongoing income, is essential for this.
Who can have a care annuity?
Care Fees Annuities or Immediate Needs Annuities are only available to people over 50 who need care immediately, whether that’s care in a care home or in their own home.
How much does a Care Fees Annuity cost?
A Care Fees Annuity is individually priced, based on age, health, Sex and the income you need it to provide. To find out how much one would cost, you would need to fill out a medical questionnaire to receive quotes.
How tax-efficient are care annuities?
Providing the benefits are paid directly to a registered care provider, they are tax free. This means the income produced doesn’t increase the persons income tax liability and that it costs less to buy a care fees annuity than it would an ordinary annuity, providing the same benefits.
Options
Escalation – To help keep pace with increases in care fees, you can
request that quotes be obtained to allow for the benefits to increase each year either by a set % per annum or by inflation.
Capital Protection – To overcome the possibility that death could occur shortly after paying the premium, for an additional cost you can protect that up to 75% of the premium paid, minus benefits received by time of death, are returned to the estate.
Care Fees Annuities- pros and cons
Advantages of a Care Annuity
• Helps prevent depletion of capital.
• Ensures continuity of care and care home. Prevents having to move care homes because one can no longer afford the current home.
• Prevents family members having to make good any shortfall in care fees.
• Benefits are guaranteed to be paid for life.
• Benefits are paid directly to the care home and are therefore tax free – creating no income tax liability for the person needing care and also leads to cheaper premiums.
• Optional escalation of benefits available to allow for rising care fees.
• Purchasing an annuity helps cap the cost of care. Whilst the initial purchase cost will reduce immediate capital it should help protect the remaining estate and enable you to invest the rest, safe in the knowledge that care fees should be guaranteed.
• Benefits relate to the individual and are portable. So if a change of care home is required the benefits will simply be paid to the new care home.
• For those with estates in excess of the applicable Inheritance Tax liability, premiums paid will reduce any Inheritance Tax due on death, effectively making the premium even better value.
In summary – Buying a care fees annuity helps cap the cost of care, provides peace of mind that the chosen care can continue indefinitely and can help ensure an inheritance.
Disadvantages of a Care Fee Annuity
• Early death could lead to some capital loss although this can be partially avoided by taking some capital protection against it.
• Even if indexation of the annual benefit is selected, care fees rising by more than the indexation selected can result in further shortfalls being created.
• Income produced will affect any means tested benefits such as Pension Credit but not benefits awarded because of disability such as Attendance Allowance.
• Once established there is no scope to change your mind or change the benefits although a further plan can be taken out to top it up at a later date.
Your home may be repossessed if you do not keep up the repayments on your mortgage or any loan secured upon it. You can pay for our mortgage advice service by a combination of fee only or commission that we would receive from the provider. The level of any fee would depend on the circumstance of the case but we would estimate the fee to be 0.5% of the loan advanced.
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“The value of your investment can fall as well as rise and you may get back less than you pay in.”