9th September 2024
Care Costs and paying for them – fact amongst the hyperbole
It is very easy to be led astray by headlines such as:
“Hated Dementia tax is back as Labour threatens your home, savings and inheritance.”
The reality is more nuanced and interesting – various governments have flirted with reform which could have lessened the impact of paying for care for much of ‘Middle England’ who were already saddled with being self-funders down to their last £14,250 (the lower capital limit). But interestingly, those potential reforms, such as the one where a ceiling beyond which care would have been (largely) free at point of use, would have replaced the current floor level which people have to spend down to before they receive assistance have been determined as abortive reforms.
What does that mean? In essence, no change to the existing position. Those with no assets (excluding those who have divested themselves of assets to avoid paying for care) will still receive care, paid for by their local authority, itself funded by central government and the taxpayer.
Given the funding strain on local authorities after years of austerity, this will not make the task of budgeting for an ageing population any easier. This means that those with assets shall continue to pay their way, but this system has always had some generous disregards built in.
See below an example of a generous disregard
If you were married, in a civil partnership or, in a long-term relationship, and you went into care, the value of your share of your home is disregarded whilst your spouse/long term partner lived in the house. This is the case regardless as to whether or not they, the ‘spouse in the house’, had any beneficial interest/ownership in the same. So, you could be in a care home and own the whole of your house but if your spouse continues living in the house, the house could not be taken into consideration for the long-term care costs assessment, and the house would be safe.
The reality here is that this takes the sting out of the self-funding regime for those who had a house, but little other stockpiles of cash, investments and low levels of personal pension provision, as long as they had a spouse able to survive in their home.
What that did lead to was that once the spouse is no longer in the house, by reason of death or themselves going into the long-term care system, then there is a significant drain on the potential inheritance for any adult children.
Those with significant assets do end up largely funding their own care, often by a patchwork of funding from pensions, investments, and eating into their capital assets.
But as aforementioned, means testing is often seen as ‘unfair’ and has led to a proliferation of behaviours designed to safeguard what was often hard-earned savings and the family home.
These proliferations range from transferring the title of the house to the adult children (none of whom frequently lived there and they often had their own properties elsewhere), to trust based solutions, all of which were often easy for a local authority to unravel. There has been a patchy record when it came to enforcement, with there being inconsistency as to whether something would be challenged in place A, but not in place B.
By reason of the medium to long term effects of austerity on local authority funding from central government, we can very probably expect to see more joined up and muscular system of enforcement in the future.
Another area of difficulty was in challenging the refusal of the NHS to pick up the costs of care under the “free at point of use” ethos. This is where care was needed in a hospital type setting, and the increasingly bureaucratic attempts to deny access to such funding, with dementia often being seen in assessment circles as a social condition rather than a medical one, those who receive Continuing Care funding are seen as the lucky few winners.
With a Labour government in place, what does that change?
Until recently, with the possibility of change on the horizon, it had been dangerous to advise in this area because of that risk of change. With that risk now gone, there is a degree of comfort as to there being ‘certainty.’
So, what does that mean?
- There will continue to be a proliferation of schemes designed to safeguard the family house which will go through the cycle of becoming popular and used before being removed by court action. The risks of these schemes are frequently not fully appreciated by those using them.
- The need for financial planning has never become more fundamental to preserve assets for as long as possible. The ability to determine when certain income streams will end, and when capital assets need to be converted to cash to be used for care, is essential. There is frequently a shortfall between care costs and income received. Cash flow forecasting can show this shortfall in a verifiable manner, and not as an act of faith.
- The use of immediate care annuities and deferred care annuities, a funding shortfall bridging mechanism that is very frequently either not known about or is often overlooked/discounted. For those with an estate worth more than £1million, the true cost of every £1 spent on the annuity scheme participation could be said to have ‘cost’ the family, taking the form of forgone inheritance, £0.60 only, the other £0.40 being forgone inheritance tax receipts on that £1.
- Where appropriate, accommodation sharing schemes could be beneficial, although difficulties can arise as to how to be fair to other children who are not involved in joint living arrangements. It is also difficult to resolve issues such as how fairness is maintained when a child has taken a large part of their parent’s available Nil Rate Band Allowance for the next seven years and would be in a better position than their siblings. But with thought, there are solutions within Wills to these conundrums.
- Whilst it is a partial solution safeguarding half of the house only, by severing the joint tenancy to the house ownership and having a Will which leaves the first to dies half share in a life interest trust for the surviving spouse that will ring fence that inheritance for the children safely and comprehensively. It must be remembered, that the same cannot be said about the survivor’s share of the house or other assets they hold which remain exposed to means assessment. Such planning under a Will on death does not fall foul of the local authorities’ deprivation of assets armoury.
But it is precisely these sorts of areas where the benefits of using a solicitor can be significant, even if it is to dissuade from certain courses of action, or to ensure that such schemes‘ shortcomings are known and discussed in families so that they are known issues rather than a rude shock in due course.
For tailored advice in this area from a primarily legal viewpoint, please contact Edward Walter on ewalter@bussmurton.co.uk or call 01892 502 320