Self funding long term care

By John Symonds Dip PFS Cert SMP Independent Financial Adviser at Talis IFA

Many of my clients ask, “How can I avoid paying care fees?” The potentially huge bill is a great source of angst for many people - as they do not want to see their children’s inheritance eaten up by paying for their care.

Sadly, there is really no effective method of mitigating your liability to pay care fees. Anything you do to avoid care fees may later be deemed, “deliberate deprivation” and there is no seven-year clock when gifting assets as there is with Inheritance Tax. Many talk about signing over their house to their children, but this is fraught with potential problems.

• If you give your house to your children but continue to live in it, then it will still be included in your estate for Inheritance Tax – unless you pay your children a commercial rent.

• You would no longer own the property, and your children could kick you out if relations turn sour.

• Even if relations remain cordial, the property could be lost if your children get into financial difficulty or got divorced.

• Crucially, if you do later need residential care, your local authority could include the value of your property when calculating the fees you have to pay because they may deem that you have only given your home away to reduce the level of fees you have to pay yourself.

But is avoid the right question perhaps we should all be asking “Why would I not want to pay care fees?”

Many believe that private care homes offer “better” care and facilities than council-run homes. This is obviously subjective and may not be true in all cases - but why would you not want the best possible care – even if you had to pay for it - to ensure your final years are as comfortable as possible? This applies to both residential care and care-at-home provision.

The potential downsides from trying to reduce your assets sufficiently to avoid paying for care, can cause both huge stress and real problems – especially in the event of family breakdown. So one seriously has to question if it’s worth it.

One possible funding option is an immediate needs annuity. This is essentially an insurance policy where a lump sum is paid to an insurance company in exchange for regular payments. This provides a guaranteed income to pay for care costs. It is designed to cover the shortfall between your other income and the cost of your care for the rest of your life. The annuity income is tax-free and can be paid directly to the care provider.

There is no perfect solution as while this option is designed to provide peace of mind, if the person requiring care dies soon after taking out the plan, you could lose a lot of money. However, the average stay in a care home is around two years so transferring that risk to an insurer could be considered good value for money, especially if the annuity is index-linked to allow for increases in costs.

Unsurprisingly, financial planning in later life requires an actual plan. It is often the case that people will carefully organise their accumulation (pre-retirement) phase yet neglect the decumulation phase, that stage in life when you live on your investments. How and when you draw your money can be just as important as growing it in the first place. By way of example an easy win for couples is to try and share retirement income as much as possible to try and avoid higher tax rates.

You can also try cash-flow modelling. It’s one of the best ways of planning retirement income. Cash flow software maps your retirement journey by looking at all your pensions, investments, savings and properties etc and analyses how these can be used to provide your required retirement income. A skilled adviser can show you how much your pension pot is likely to pay you in the future, and you need to be as certain as you can be that you won’t run out of money in retirement!

Too many live in homes they can't afford to heat but have a lot of money tied up in the actual bricks and mortar. Equity release offers an opportunity to convert part of that home into cash. It's not for everyone, but it's certainly worth considering. Talk to a specialist independent financial adviser to find out more. three years.

We work hard all our lives and hope to build a nest egg. But HMRC raises billions in inheritance tax every year. Most believe they need to give money away early or set up complicated trusts and survive seven years to mitigate that liability. But there are some interesting, legitimate, liquid investments that are considered outside your estate if you hold them for just two years. Therefore, for obvious reasons, this type of planning is becoming increasingly popular with older clients.

In summary, it is important to try and strike the right balance between using your wealth to enjoy your retirement whilst protecting any surplus assets and income for your loved ones. Ignoring these things can prove extremely costly and doing nothing is a decision in itself. However, careful planning with a qualified professional should help you prepare and organise for retirement with confidence and peace of mind.