How to pay for long-term care
As the population ages, the question of how to pay for long-term care is becoming increasingly important for clients. If a client requires social care and they have savings above a certain level, then most clients will have to pay for their long-term care.
Many clients consider giving away assets in order to preserve assets for their beneficiaries in their will or to qualify for social care funding. If you deliberately deprive yourself of assets in the six months before requiring care it is presumed that it was done to avoid paying care fees and you will have to prove otherwise. However, the local authority can look back as far as it wants to, if the local authority can prove that assets were given away deliberately to avoid paying care fees.
First of all a client should find out if they are eligible for any funding from the local authority or the NHS. If they are not, the client will need to look at other ways of funding care such as selling their property or renting out their property or releasing the equity of the property or deferring the payments or setting up an immediate needs annuity.
The NHS would pay in full if there is a health need as opposed to a social care need. A needs assessment is made and NHS funded continuing care will be recommended, if you have been assessed as having a priority need or severe need. As the criteria are very strict, very few people are able to obtain NHS funded continuing care.
If the client is not eligible for NHS continuing care, then the client’s income and state benefits will be assessed to see if they can fund their own care in full. If you are assessed as having social care needs then the local authority will decide whether your social care needs are critical or substantial, moderate or low. Most local authorities will only fund the care of those clients who have substantial or critical needs and only those who have assets below the current threshold of £23,250. There are proposals that only people who are assessed as having substantial or critical needs would be funded by the local authority.
Local authority funding can depend on whether you receive care at home or in a care home. If a client is receiving care in a nursing home or a care home, the value of the client’s property is included in the financial assessment unless it is being occupied by the client’s spouse, partner, former partner or civil partner or a relative or a member of the family who is aged sixty or over or who is incapacitated or a child under the age of eighteen, who the client is required to maintain. The client is regarded as a self-funder if their property is included in the financial assessment.
If the client receives care in their own property, the local authority will not take the value of the property into account in the financial assessment. Some local authorities increase the capital threshold or even set the maximum amount they expect clients to pay for their care.
However if the client does not meet the social care needs criteria and the client has assets over the £23,250 threshold then the client will need to consider how they pay for their own care. They will need to consider asking relatives for a third-party top-up or releasing equity from their home.
Renting out a property is not an easy option as the property will need to be managed and there could be periods when no rental income is received. Also the amount of rental income might not be sufficient to cover the costs of long-term care.
Many clients decide to stay at home for as long as possible and this is something which is encouraged by the local authorities. If the client does not have much capital, they could decide to release the equity from their property to fund their care.
If a client’s assets are below the current threshold of £23,250 then the local authority may offer to put an interest-free charge on the client’s property and the care costs are repaid on the sale of the property on the client’s death under the deferred payment scheme. However, the local authorities are not so keen on the deferred payment scheme and may only be willing to pay the standard rate for the costs of care, which can result in a shortfall. There are plans to make the scheme available nationally in 2015 and there are proposals to enable the local authorities to charge interest. However, if the client lives for a long time, there may not be any monies left in their estate for the beneficiaries on death.
If the client sells their property, the cash proceeds could be invested to produce an income. This however is only a realistic option if the shortfall is small.
Another option is to buy an immediate needs annuity. A lump sum based on life expectancy, which is calculated by an actuary, is paid to an insurance company and a regular income is paid tax-free to the care home for the client’s life. Some provision can be made for increases in care fees but further lump sums would be required to fund significant increases in care fees. There can be disadvantages if the client dies prematurely but some provision can be made for this. An immediate needs annuity can be used if the client wishes to avoid asking relatives for top-ups or wishes to ensure that the assets of their estate are not completely used up to pay for care fees. Immediate needs annuities are preferred by care homes and local authorities.
There are likely to be many changes to the rules and regulations in relation to long-term care and who has to pay for long-term care. Clients should consider this issue along with their Wills and Inheritance Tax planning.