Financial Planning for Care Fees

The challenges facing the Social Care sector frequently make headlines, with successive Governments yet to come up with a plan to fix them.

Understandably, you may be concerned about what your own situation could look like should you need care in later years. Care can be expensive, and the State is unlikely to pick up the bill – certainly if you wish to have some say over when and how you receive care.

Thresholds for paying for care

It is worth a reminder that anyone in England and Northern Ireland with capital above £23,250 is expected to pay for any care they need, with the figure £28,750 in Scotland and £50,000 in Wales. (Some contribution is required for those with capital between £14,250 and £23,250 in England and Northern Ireland, and between £18,000 and £28,750 in Scotland).

The importance of planning ahead

You should be aware of the deprivation of assets rules, which can apply if you are deemed to have deliberately given away assets to reduce your capital in order to avoid paying care fees.

In such cases those assets would be included in the means test, which could result in some hefty bills for family and friends.

This underlines the importance of planning ahead, and not simply waiting until a crisis hits.

How much should you save for something that might not happen?

It’s very difficult to predict who is going to need care, how long for and how much it will cost.

Estimates suggest just 4% of the population aged 65 and over and 15% of the population aged 85 and over live in care homes (Laing and Buisson survey 2016). In 2011 the Dilnot Commission* estimated that a quarter of people aged 65 will spend very little on care over the rest of their lives, half will spend up to £20,000 and one in 10 over £100,000.

Some will end up spending hundreds of thousands of pounds.

There is no specific amount of money that you should save. But the principle remains; if you wish to have some control and choice over your care (should you need it in the future), and you have the means to do so, it is prudent to set some money aside.

Passing on family wealth

If savings are not needed for care, families are more likely to want to see those assets pass to the next generation rather than the tax man.

This is where lifetime Flexible Trusts can really help.

If you simply continue to hold your potential care fees savings in ISAs, cash, National Savings or investments (be careful if you own Insurance Bonds), any amount over the nil rate band (£325,000) will be liable to Inheritance Tax at 40% on your death.

By using a Flexible Lifetime Trust, assets are moved outside of your estate and after seven years will not be included in the valuation of your estate for Inheritance Tax (IHT) purposes, yet still remain available for you to use to cover your care costs if needed via flexible reversions (annual payments).

You can, of course, recycle your Nil Rate Band (NRB) every seven years too, removing more assets from your IHT and Residence NRB‐assessable estates, whilst retaining access to flexible reversions, if needed, in the future.

If you would have a question regarding planning for care and Flexible Lifetime Trusts, please get in touch.