Transcript

SUMMARY KEYWORDS

care costs, domiciliary care, residential homes, nursing homes, state support, family support, asset protection, inheritance risks, deliberate deprivation, equity release, tenants in common, financial planning, early planning, emotional burden, legal challenges

SPEAKERS

Martin Stanley, Scott Gallacher

 

Martin Stanley 

My name is Martin Stanley, and welcome this evening to the latest in this series of webinars that Rowley Turton are putting on for our clients, and possibly also for some people who would like to become clients. The subject tonight is an important one. It affects most of us. It is about what happens when we need care in our later years, whether that is for ourselves or perhaps for our parents. Telling us about that subject tonight is mycolleague, Scott Gallacher. He is a chartered financial planner like myself, but in Scott’s case, he is also a qualified expert in this particular field, so we can shoot all our questions on this subject at him. Before I pass you over to him, there are a few things to be aware of. Your microphones are muted today, so there is no problem from your end. And there is also a Q&A feature through zoom at the bottom of the screen, you can click and ask questions, and we will be taking all of those at the end, so there will be plenty of time to ask questions. In case you have missed anything, we will send a recording to everyone who attends, and if you experience any technical difficulties, just let us know. At the end of this webinar, we will offer to you, if you would like, a free book. It is called Enough, and that is something that describes a little bit, not about longterm care specifically, but about the way Rowley Turton works with its clients. So remember that at the end. Now without further ado, I will hand you over to Scott, and he will take you on a journey through the topic of care in old age. Thank you.

 

Scott Gallacher 

Thank you very much. As Martin said, my name is Scott Gallacher. I am a chartered financial planner and longterm care specialist with Rowley Turton IFA limited. We are a long established firm of independent financial advisors based in Leicester, just at the end of the M69. Care fees are a growing concern, and for many people is arguably the elephant in the room. We have an ageing population, a demographic time bomb, withpredictions of 1.7 million more people needing long term care in the next 20 years, chronic underfunding of anyone who has had experience with the care sector, and care staff shortages. The BMA are predicting there being shortages of half a million people by 2030. The NHS is in crisis and various governments, no matter what the colour, have been kicking the can down the road. We have had various attempts to fix the care problem in the UK, from Gordon Brown’s national care service to the Dilnot report that proposed a cap on care fees. Generally, when the government look at these, they realize that it is an issue because we as individuals do not want to pay for a carer, parents do not want to use their houses, wealth, investments and other savings to pay for care, and we as taxpayers equally do not want to pay for care. So it is a problem for us all, and it is not a very easy to solve problem, especially in the current financial crisis. Onto current care costs. When we look at care, generally we are looking at one of three elements, possibly also Premium Care Homes, which I will touch on briefly. There is Domiciliary Care, which is care in your own home. And this is, the point where most of us, if we were to need care, would hope to start at, we would rather remain in our own home with somebody coming in to help us. But even that is not cheap, so care costs, and they are normally for an agency, so not necessarily what the carer receives, but those care costs are £23 to £34 an hour, depending on where you are, could be more, could be less. To put that into context, if you need somebody to come in for just two hours a day, to get you out of bed, or maybe to help feed you and put you to bed at night, or just some assistance. For just two hours a week, at those kind of prices, is about £400 per week. Now bearing in mind the fury about the Winter Fuel Allowance, and how people who earn receive astate pension or pension income of £220 per week, do not get pension credits, and therefore do not get the Winter Fuel Allowance, you can imagine that if your state pension is only £200 a week, and the care fees evenin your home are £400, there is obviously quite a mismatch in that. Then the second level is residential homes.People tend to use the phrase care home a bit loosely, and I am as guilty as anybody else on that, and they tend to mix up Residential Homes, where primarily it is personal care without a nursing care element, and Nursing Homes, which are essentially the same thing, but where there is nursing care. I will touch on what thatdifference is later. Thirdly you have Premium Care Homes. So if you are in Leicestershire, the likes of South Lodge, which is notably more expensive, I did not mention the cost. You can see it on screen, but residential care homes typically cost just over £1000 a week, so around £56,000 a year, obviously it does vary. Nursing homes, it is fundamentally the same but with a nursing element, so more expensive. Average costs of £1,300 per week, that is nearly £70,000 a year which is expensive. These figures have gone up dramatically from when I first started doing these types of talks, which was 10 or 15 years ago, and the costs just keep going up and up. The specific title of the talk is regarding “The Seven Myths of Long-term care”. I have been doing this talk for 10 or 15 years, and they fundamentally have not changed, but I will run through them. One, the state will pay for my care. Secondly, my family will support me. Three, I will simply give my house away so I do not have to worry about care fees. Fourth, I have already given my house in trust, or I am planning to, so that will save me from care fees. Fifth, do not worry about it, my inheritance will cover it. I am going to inherit money, and that will cover my care fee costs, so I am not too concerned. My favorite, I will die before I run out of money, it seems to be a preferred option for a lot of people, just push me off a cliff or something. I am sure it is the most practical option, but I am also going to run through why that is probably not going to be the case. And finally, I can sort it out later, it is not that people do not want to sort it, but life justs gets in the way, and they think they will deal with it later, which I believe is dangerous. The first myth is that the state will pay for my care. I mentioned earlier about the NHS and the care service and various crises. Some people think that care is similar to the NHS, and they believe that the NHS will pick up the bill, but usually, there are exceptions, but generally they do not, and that is because long term care is primarily made up of personal care, nursing care and accommodation costs. And if you think about the NHS, it is primarily concerned about nursing and or medical care. If I broke my leg and ended up in hospital, of course the NHS cover all of the costs whilst I am in the hospital: nursing care, personal care, and accommodation costs. But as soon as I come out of hospital, then they are not paying any of those costs. But also, if I am in a care home,most of those costs are actually personal care and accommodation costs, not nursing care. And this was illustrated by the relatively small difference in the cost of a residential care home and a nursing home, the difference was only a few hundred pounds per week, and that is the issue that people have. And the NHS generally only covers nursing care. That is the first problem. And then secondly, if you have accessible assets of over £23,250, you are generally self funding, and that is both in terms of capital, but also income. So even if your assets are below £23,250, you can make a partial contribution, which in a lot of cases can be most of your income. I will touch on that later, but even if your assets are below £14,250 which is the lowest level, as it were, you would still make a partial contribution, which is essentially most of your income. So even if your assets are only £14,250, it is not true that you do not pay for your care, it is just that you probably do not have much money in the first place, but I will come on to that in more detail later. But the idea is that for most people attending this webinar, your assets will be over that £23,250 figure, and you will be paying for your own care. It is only when your assets get below that figure, generally, that the local authority will start paying for your care. It is worth mentioning a small caveat on that, the asset figure includes your house, but if your spouse is still in the house and you are in a care home, the house is generally excluded. If you have a disabled relative living with you in the house, then the house is generally excluded. Or if you have a family member aged 60 or over. But if you own the house and your family member is 59 then it is generally not excluded. So the house is normally included in that £23,250 figure, but there are exceptions. As I said, the reality is, if you have capital of more than £23,250, and that can and often does include the value of your house, then you will have to pay for your own care. And it is expensive, as I have mentioned earlier, over £1000 a week, not a month, for a normal residential care home, and  for a nursing home, then £1300 per week plus, that is around £70,000 a year. It is not cheap. Second myth, your family will support you. Everyone remembers the old Charlie and chocolate factory film, the original with Gene Wilder. And the idea was, that Mum, Charlie, and the four grandparents all shared the same bed. That is, rightly or wrongly, not the current scenario. In my experience, people are less likely to want their parents and/or grandparents living with them, families are increasingly fragmented and location is is an issue. People move around a lot more because of job mobility. People go away to university and then stay at university. Remote working means you can live and work anywhere, and that can be good in terms of allowing people to come home to care for family, but it also means people are even more likely to be widespread. And we have international migration now, people live all around the world. I was golfing with somebody the other day, and his daughter was still relatively local, she lived a county or two away. So again, not close enough to tuck you in at night or to make sure you have had some food or to get you up in the morning. However his son had emigrated to Australia years before. And whilst it is very nice to have a zoom call and go on holiday, if you need care, they are not going to be able to find any physical assistance practically. The other point is, we are all living longer generally. So when we ourselves need care, we are likely to be older, but also our children are likely to be older, so they might be in theit 50s, 60s or even 70s when we need care. Now the question is, are they young and healthy enough to be able to help us? Have they got the physical strength to be able to get us out of bed in the morning, or to put us to bed, or to bathe us? If it is a financial issue, are they wealthy enough to contribute? People have got their own financial concerns, perhaps they are trying to still pay off the mortgage. Perhaps they have kids at university that they have to make financial contributions and support to help them out, perhaps they are trying desperately to save for their ownpension, so they might not be able to help pay towards your care costs, even if they cannot physically help themselves. Also, can they afford the time. People are much more time pressured nowadays, I believe, will this create resentment? So if you are saying, it is alright Mum, I will pop round and put you to bed, get you up in the morning, or commit that time and make your dinner. Well, what does your spouse feel about you doing that? There can be resentment issues. So the reality is, you might be on your own. It sounds incredibly harsh, and perhaps it is, but I think the reality is that people will not have the family support that they expect to receive. And I have seen this recently, somebody went into a care home, and the family gathered to decide what they might contribute. And one of the children was completely fine with making a contribution, another one, who was receiving the house I would hasten to add, was quite happy to make a contribution. One of his other siblings, who was not receiving the house, I believe took issue with that. She did not feel that it was appropriate at all that she should contribute towards her parent’s care fees, especially since her brother was receiving the house, and I think that has caused a bit of anguish in the family, but I do not think it is completely unexpected.I mentioned earlier, some people think they are fine because they simply give their house away. So, “I have to pay for care. I know that it is expensive, but I have given my house away, or I plan to, and therefore I will not have the house, so I do not have to pay for my care”. Well, the first thing to say is that it is unlikely to work due to what I call deliberate declaration rules. These are the specific rules that say that if you have deliberately deprived yourself of an asset, if you have given it away in order to avoid care fees or claim benefits, then the local authority, in the case of care, can refuse to pay for your care. And you might think it is their problem, because “I do not have a house Scott, so it is a local authority problem”. It is not the local authorities problem if they deem you to have deliberately deprived yourself of that property, they just will not pay. And in certain circumstances, they can even sue the children to recover the value of the house, or actually the asset, and all of the money that you received. It is worth pointing out, there is no time limit or seven year clock on gifting for deliberate deprivation purposes. Unlike inheritance tax planning, where if you made the gift seven years ago it would be exempt, this is not the case for deliberate deprivation. There are cases where people have given money away less than seven years ago, and it has been deemed not to be delivered deprivation for various reasons. And then there are cases where people have given money away more than seven years ago, and it has been deemed to be delivered deprivation. There was a case which I recently read about where the son, and I think it was the Mum who was in the care home, they had a meeting with the local authority to discuss the finances and what had happened, and the son very confidently told the local authority that he was fine because his Mum had gifted the house to him more than seven years ago, at which point local authority said, “so you believe that there is a seven year clock for long term care planning?” And he said “yes, I am more than seven years away, we are perfectly fine. You cannot do anything.” And they took that as confirmation that the house had been gifted specifically for long term care fees planning, and for no inheritance tax reason, and therefore they essentially put that house back on the table for the care fees so it backfired on him, spectacularly. Equally, there is no exempt gift amounts unlike with inheritance tax planning, and it is risky, even if you do gift your house away. And some people do it, and it does work, I will caveat that, but it just should not in a sense. Can you trust your kids? Would they not try to evict you and sell the property and use that money for themselves, or the house? What if they become bankrupt? Could creditors claim your house? What if your children divorced? Could your ex son-in-law or daughter-in-law claim half of your house? Possibly, so you have to be very careful. As I say in reality it is dangerous and might not work. And I would say that I would expect it not to work. “So, I cannot give my house away, that is probably not going to work. But what about these so called asset protection trusts that I have heard about. Maybe I have done one.” I was speaking to somebody the other day whose parents had been missold one, that was how they felt. Again, it is unlikely to work due to the deliberate deprivation rules. It is risky. You couldhave a divorce, bankruptcy, etc of the trustee/beneficiaries. Some of these are been arranged through specialist solicitors or will writers. And we have come across cases where those firms have, subsequently, essentially gone bust, and then it is very grey about who has control and ownership in that sense of the house,and that has caused huge angst for the people concerned, and huge uncertainty. There is a loss of control of assets, because if you have gifted your house to a trust, then it is technically not yours, and so who controls it?That is problematic. The trusts themselves tend to be expensive, a couple of £1000s plus, I have certainly seen prices of £3000 or £4000 quoted. I would say that when I speak to solicitors in Leicestershire, of the good, wellestablished firms that we would hopefully know and trust, I cannot think of a single one of those firms that have advised their clients to take out these trusts. From the somewhat more salesy firms, I have seen selling ofthese trusts. So I think that gives you an indication of where the legal profession is in this use of trusts. And there is certainly an argument that there is false promises and misselling of these trusts, and they can have adverse tax consequences. So again, like giving away your house, just with it being a trust this time, it is dangerous, it can be expensive and it might not even work. Finally, care fees are expensive, I need to pay, that is going to have a knock-on effect on me, on me, or on the money I leave to my children, but it is alright because I am going to get money from my parents. My inheritance, the money that I will receive from my parents, will cover it. There are lots of issues with that. Again, with all financial planning, relying on inheritances being received is dangerous. You have the longevity risk. Parents may live longer than you expect, so by the time you need care, and therefore might need the money to help pay for it, you might not be receiving it yet, because your parents might still be here. You have the parent’s own care position, whether any inheritance that you receive may be gone completely or certainly much less because it has been spent ontheir care fees. Second families, second marriages is not uncommon, even in old age, and therefore you can see your inheritance delayed, diluted or it may even disappear, whether deliberately or accidentally. If your Mum dies, and your Dad marries somebody else, much younger, he leaves your inheritance, or as you would see it your inheritance, to her to protect her. He possibly has aditional children, so you now have half-brothersand sisters, he might feel that they need more help than you do, or he just simply buys a house with his wife, does not do a will and then it effectively just automatically passes to the stepmum, kind of accidentally, in a sense. Families fall out. It is sad, but I have come across plenty of cases where people fall out, and even whereparents have disinherited children. So again, you cannot be certain that you are going to inherit. And then obviously, you have inheritance tax. There will be a budget shortly, it might change inheritance tax but it is expensive anyway, at 40% when over the million pound threshold. So you might not receive what you expect just because of tax. You might not receive what you expected or not receive it when you need it, so relying on it for care fees, I believe is dangerous. The 6th myth, which is one of my favorites, I “will die before run out of money, Scott, do not worry about it”. Well, firstly, you have this longevity risk. The average stay in a care home is around two and a half years, but you may live longer than expected. 10% stay less than one year, but 10% stay more than eight years, this could cost maybe £50,000,  £60,000, or even £70,000 a year, and you are going to be in there for 10 years, that could cost half of a million pounds, which, if you have a average house in Leicester and a bit of savings that could all be gone, in that case there is a 10% chance it could all potentially be gone. Care is expensive, and also care costs typically rise faster than inflation. As I said, I have been doing this talk for a long time, and during that time, costs just keep going up. The reality is you might notdie as soon as you hope or expect.  Finally, myth 7, is “I can sort it out later, Scott, I do not need to worry about it today”. Unfortunately not. If you leave things to the last minute as we are all tempted to do, what is the impact? Firstly, reduced care options. Perhaps you have been caring for Mum and helping her, and then finally, either her care needs worsen, she needs more care, or you are just at the end of your tether, I have certainly had clients in my office in tears because of the pressure that providing care for Mum and Dad was putting on them, and you need to get theminto a care home sooner, just for your own sanity, if nothing else. Well, of course, with anything that you are doing in haste, you generally have less choice. You are rushing around, or have not necessarily done the research, maybe you will not get the best or the most cost effective option. That is not good. Loss of asset protection, I mentioned the deliberate deprivation rules and how giving away houses and money and use of trust might not work. If you do things earlier, bizarrely they can work. However, if you leave it to the last minute, then it is unlikely, if Mum is going to the care home tomorrow, and you are trying to sign the deeds of the house over, it is almost certainly not going to work. Missed benefits. There are various benefits that you can claim if you need help and assistance, especially as you are older. They are not always backdated if you have missed the claim, and therefore looking at those things earlier is sensible. Can you claim attendance allowance  for yourself? Or can your mother or father claim it if you are caring for them? Can you claim carer’s allowance yourself? All of these factors, including legal challenges. If you act early enough and you have capacity, you can do your wills, you can do lasting powers of attorney, it gives the rights to spouses or children to make financial decisions for you. If you lose capacity, you cannot do wills or lasting powers ofattorney, there are various other financial planning and legal matters you can no longer take on, and I mentioned earlier about the emotional burden on family. If these things are planned, it lessens the burden a little bit as you are not running around at the last minute. Even with something as simple as choosing a care home for Dad. If Dad has still got capacity, he can be involved in that process. You can decide whether he wants to be near you or your brother, what preferences he has, maybe he has looked at it himself. If he loses capacity, then you cannot necessarily have that conversation with him. You might not know whether he wanted to be nearer to you or his brother. You might not know whether he wanted this care home or that carehome. And that can cause guilt, if you do not know what Dad might have wanted. Whereas talking about this sooner would obviously be beneficial for all. The reality is that delaying planning for long term care can leadto fewer choices, higher costs, and emotional stress for you and your loved ones, but planning early is obviously key. Now let us recap the seven key points. Normally, you are paying for your own care, certainly our clients are. Your family might not be there to care for you. Giving your house away is dangerous and might not work. So called Asset Protection trusts are expensive, dangerous and again, might not work. Relying on potential inheritances to pay for your own care is dangerous. You might live longer than you think, and delaying is dangerous.  We have now covered the seven myths and the reality, so perhaps now it is worth just stopping briefly to look at some practical advice for long term care planning, things that may or may not help you and your family situation. We will look at maximising savings and investments, preparing legally, and claiming benefits. Onto maximising savings and investments. It is a simple thing, that care is expensive, so the more money you have, the better off you are, in a sense. I believe people look at this the wrong way around, people look at it and try to get their wealth down so that they do not pay for care. But that then puts you in the prospect of the local authority deciding your care home and care package, which is not really where you want to be. They generally have an involvement anyway, even you are self funding, but you want control of the care you have and the care home that you go into, and where that care home is located. If you take early action in regards to investments, if you can start saving and investing sooner, and hopefully you build up a bigger pot, and therefore you have enough money to pay for your care. Maximise interest rates and investment returns. I was talking to somebody the other day, they had £100,000 that was on deposit. It was a decent rate when they took out the account, but of course now the bank have changed the terms and conditions, and they are offering a new account, but for the account they are on, they went from paying 4% or 5% interest to paying less than 1% so if they have £100,000 on a deposit, that is £4000 less in interest they are receiving than if theywere on the best account, if that is left to languish for 10 years, which is not unusual, that can be a £40,000 difference. That, along with your state pension and other income, could make the difference between one extra year in your care home of choice, as opposed to the local authority’s care home of choice. That is worth it for basically just moving around your bank account. It is the same with investment returns. Obviously, you need to ensure appropriateness. You have to check the charges. Make sure you are not overpaying, make sureany investments or savings are appropriate for your risk. Access, we have come across this in the past. People tie their money up in, certainly in bank accounts, to get the best rates, but do not always think about their financial position or personal position. If you are likely to go into a care home in the next six months, putting the bulk of your savings in a one-year account, which might have a six-month interest penalty or no access at all, might leave you in a difficult position, because what happens in six months time if you go into a care home, and you cannot actually access money, or cannot access it without a huge penalty. Tax, you cando planning with tax, and we do a lot of tax planning for clients. Again, the sooner you look at it, the better. On tax efficiency, make use of ISAs. If you are reducing using your tax liability, that is more money for you. Basically that means you have a bigger pot, and therefore you can pay for a nicer, better care home, for longer. Premium Bonds, are very popular for clients. I know people that won £100,000 or a million pounds, itgoes a long way to lessening your care fees issue if you just won a million pounds. It gives you other problems,like inheritance tax, but you cannot have everything. In simple terms, more money means longer, better care. Prepare legally. I mentioned earlier, if you have capacity, we can look at wills, lasting power of attorney, living wills, specific instructions about your medical care. If you have lost all capacity and you have not done that, that is all gone. Trusts. Now I mentioned the so called Asset Protection trust, and I was not a fan of that at all, but there are lots of trusts that we use for clients on a daily basis that can help preserve money for families, can help for tax planning, and can help protect against Long Term Care fees. One of my favorites, which I will only touch on briefly but if anyone wants a separate conversation later, I am quite happy to have a meeting, even myself or Martin can assist. It is regarding a husband and wife, the house is owned jointly, the traditional way is joint tenancy. The husband dies, and the House passes to the wife. The wife goes into the care home. All of that house then is potentially used to pay for care fees. However, the husband and wife could have split the house via a severance of tenancy into an ownership called tenants in common so they own 50% each rather than the house together. They can both write new wills where they leave their 50% share to a trust, rather than to each other. That trust would normally ensure that the survivor can live in the house rent free forthe rest of their life but the capital value of their half of the house passes to children and grandchildren, and not to the spouse. This can be incredibly valuable for clients, in terms of protecting at least half of the house from care fees. And yet, on a weekly basis, I have come across cases where people have not done this. People are amazed that you can do it. It is not particularly controversial, not particularly expensive, it generally needsa solicitor or a specialist kind of accountant to look at it. Inheritances, you might receive inherititance from parents. We are all getting older and you are going to have your own care fees issue, and any inheritance you receive might simply go to paying care fees. You might speak to your parents about them rewriting their will to leave your money, as it were, to trust, to effectively bypass you for care fees purposes. It is perfectly legal and legitimate. Again, if we are older and thinking that our children who also older and we might be worried about their situation, we might use the same principle. We might leave our children’s inheritance to them indirectly, via some kind of trust arrangement to protect it from care fees. And again, to each other, to our spouses, I mentioned before that spliting the house in half is an option, leaving your half not directly to your spouse, but indirectly, via a trust arrangement to protect it. There is lots you can do. That is very hard to do once you have lost capacity at the last minute, or if somebody has already died. Well, there are some ways that you can do some things, but you are better to start sooner. Finally, claim benefits. The cost of care is expensive. Benefits do not solve the problem entirely, but they help. You have attendance’s allowance which is £72.65 a week, or £108.55. Typically, if you are in a nursing home, you are going to receive attendance allowance anyway, but it could be overlooked. That could be £5000 a year, which helps towards the bill. NHS-funded Nursing Care (FNC). I mentioned this point earlier, about the difference between personalcare and accommodation costs and nursing care. If you have a medical need, then in addition to the attendance allowance, you can also potentially claim NHS-funded Nursing Care. And that is an amount between £235 per week and £324 per week, which then will go towards bridging that cost difference between a residential care home and a nursing care home. And therefore, it helps the cost. In an ideal world, the NHS would pick up the tab. But as I explained, this is generally not the situation because it is normally primarily personal care. However, for some people, it is primarily medical care, and this is covered by the NHS under a principle called NHS Continuing Healthcare (CHC), a fully funded package where they pay all of the costs. And we have certainly come across cases where the NHS effectively picked up a tab of £100,000 a year. So all the care home costs for people, and this is not something you want to overlook. You do not want to find that somebody died and they were in a care home for five years, paying £100,000 a year, and you could have had the NHS pay for it, and you did not. I believe they have also limited how much you can backdate those claims as well, so you definitely need to be proactive on that. This is very hard to get, it is definitely the exception to the rule. There is a system where you can download a checklist for the Continuing Healthcare. However the system is somewhat flawed, because you will go through the answers to the checklist and it will say that you qualify for an assessment in almost all cases, in my experience. However, thatassessment is then when you fail, the bar is set extremely high. But it is definitely worth looking at. And I would normally advise anyway, to have a word was Adult Social Care, have a word with perhaps ourselves, have a word with the care home about whether they have experience with this and whether they think that somebody, even if they pass the checklist, would pass the assessment, because otherwise you might be wasting your time. But for the potential benefits, all of these things are certainly worth looking at. Just on the attendance allowance, one thing briefly I should mention, I believe I mentioned earlier about carer’s allowance. If you are caring for Mum and Dad and they are in receipt of attendance allowance, for example, you might be able to claim carer’s allowance, depending on your earnings and how much care you provide. That is the thing overall, and generally, I do not think it can be backdated, maybe for three months. You want to be looking at that. The important thing with all these things, apart from carer’s allowance, is attendance allowance, the NHS-funded Nursing Care and the NHS Continuing Healthcare, they are not means tested. Even if I am Sir Paul McCartney in his 80s, a billionaire, and my health then declines, I can claim all of these things subject to my medical conditions or medical situation, the billion pound and the songwriting royalties do not affect these benefits. So even if you think you have too much to claim, it is probably not the case in this because they are generally not means tested.  In conclusion, the financial cost is important, but I believe it is more than about simply pounds and pence and the financial matters. I think it is more about dignity and control than the money or even your children’s inheritance. This is the point, people think, “I will give that house away. I will give away all the money, and then it is the local authority’s problem. Even if that works, and it does not always by any stretch of the imagination, then that means the local authority is dictating the level of care you receive, and also the figure that you are left with, which is personal expense allowance. Even if you say that you have given the house away, so when people say that somebody lives in a council house so they do not have to pay care, they still effectively lose all of their pension income, and effectively they retain an amount of £30.15 per week, a personal expense allowance I think is the technical term, and I have witnessed this first hand. I have done a lot of work with care homes. I once went into a care home, and I saw a care worker who was rolling up some cigarettes, not for herself but for one of the residents. And her reasoning was “I have to roll them up because John smokes.” You know, the pros and cons of smoking, some people are obviously anti it, which is fair enough. But the point was that he only had £30.15 a week total to spend on himself, outside of food and stuff that the care home provide. Therefore he could not smoke normally, because he just literally could not afford it. And of course, he could not roll up his own cigarettes because he did not have the physicalcapability, so they were having to roll them up for them, and this is it, you are effectively rationed on pocket money in your 60s and 70s, when you should be cared for and protected, and I think you lose a lot of your dignity, so you have to be cautious on all of this. What we are trying to do is help on the financial side, but also, more importantly, on the dignity and control. Acting sooner rather than later, is almost always best.  How we can help you? We can help you understand your overall financial planning picture, which is not limited to care, calculate how much you need now and also obviously care needs, and work in conjunction with accountants, solicitors and experts to pull together everything so that everything is working for you, and that there are no missing gaps. And navigating what is an increasingly complex financial world, helping you to enjoy your wealth and hopefully not worry about care fees too much. As I mentioned earlier, there is a free book which explains our financial planning approach. If you just email martin@rowleyturton.com with your home address or office address, then we can stick one in the post if you would like one. Questions from Martin.

 

Martin Stanley 

Hello again everybody, and Scott, thank you very much for that whistle-stop tour about care fees. It is a big subject and there is a lot to know about it. Quite a lot of what Scott was telling us about this evening were things that do not work, unfortunately, and that is because the things that do work, frankly, it is difficult. But as Scott emphasizes more than once, planning early is the key, really, and not putting your head in the sand. Before I go onto the questions, I just wanted to reiterate that we are here to help answer any of your questions. If you or someone you know would like to speak about these things, or anything about financial planning, get in touch. You can come in, sit down at our table here, have a cup of coffee and a biscuit, and wecould chat about your financial planning, so please use us as that resource. Onto the questions. We have a few questions this evening. First one, Tony would like to know “what would be the effect on deliberate deprivation of taking out an equity release mortgage before you go into long term care and investing the sumof money in a trust scheme to obtain a greater income”? There is quite a lot going on there. Scott, what about equity release and deliberate deprivation?

 

Scott Gallacher 

I think you would be fine. With all these things, it is always grey, but if there was a clear need to do it from an inheritance tax angle, then firstly you are going to say, well, I have money at this point. In today’s terms, you as an individual, are probably going to be worth half a million, there is a couple of million pounds. So the first argument is, “I do not envisage having to fall back on local authority support in the first place because of the assets”. How does a discount gifted scheme works, for those that do not know, is essentially where you are giving money away, but you are effectively retaining an income, albeit regular capital withdrawals are technically not income, into your bank account. It is less easy for the local authority to argue that you are deliberately depriving yourself of that money, or certainly all that money. And also, if you did it 10 years ago, all of those factors are going to make it difficult for the local authority to say that this was deliberate deprivation. If you knew that you were going to go into a care home next month, and took the equity release money just to give it to your daughter, then I believe you would have an issue. But in this case, I believe you are probably fine.

 

Martin Stanley 

The follow up question from Tony here is, “can the local authority get hold of your personal funds when calculating your assets, over and above that £23,250?” I think perhaps he means how can I get hold of the information about the funds?

 

Scott Gallacher 

Yes, I am not entirely sure. If it is a question of, can I get information, they essentially will go through a financial assessment with you or your representatives, and it is like all tax and financial matters involved with the government, the principle of being open, frank and honest and you will be in trouble if you do not disclose information. You do have to be a bit cautious. I believe it was Leicestershire or Leicester Council who were a bit sneaky, in the sense that one of their guides a few years ago implied that if you needed care, your wife hadto complete the financial assessment, which is not the case. Your wife’s money is her money, you have to only disclose yours. And it was felt by me and some other professionals that this might be a fishing expedition in order to find out your affairs. So that is fine. Tony has just clarified, he said “I meant to say personal pension funds”. Yes and no. Pensions are different when it comes to long term care and other benefits. They cannot make you cash your pension fund in and receive the whole pension. However, depending on age, so if you are younger you should be alright, but certainly in your 60s, shall we say, certainly past state pension age, they can  essentially insist that you take the benefits from that pension, so not all in one go. They can make you take the income from that pension fund, and therefore that income could then go to pay for your care fees. It is worth pointing out the situation with husbands and wives, or couples, civil partnerships and married couples. If your husband, for the sake of argument, goes into a nursing home, but he has his own private pension, you as the wife staying home can claim back half of that private pension income towards thebills. But, if it is the other way round, if the wife in that scenario was going into a care home, and the husband has the pension, he does not have to contribute to her care. So again, you need advice in this situation regarding where people are, pensions and all of these things. There are a lot of nuances, and a lot of things you need to know, and a lot of planning, even from splitting joint accounts to single named accounts,which can have benefits.

 

Martin Stanley 

Thank you, Scott. Gordon asked a question to do with something that Scott spoke about 10 minutes ago. He says, “can you just go over again the splitting of the main residence again, tenants in common was the phrase”. Scott just break that down again for us, please.

 

Scott Gallacher 

Yes. So the traditional way that a couple bought a house was that they bought it together, and it was held in what is called joint tenancy. And what that means is, you and your husband or wife do not own half and half, generally, you just own it together. “It is Just our house”, and the bright side of that, in some ways, is that if somebody died and they had not made a will, their half of the house, as it were, automatically passes to the survivor. So we owned all the house together, now the survivor owns it all themselves, and that works really well. There is lots of advantages to that. However, if that person then goes into a care home, or even worse still, is already in a care home, they suddenly own all of the house, and the local authority will say, “great, you have assets of over £23,250, apart from some exemptions if you have elderly or disabled relatives in there, so that house is now going to be used to pay for your care, because we are not paying anymore as you have a house worth over £250,000”. What the alternative approach is, you can split the tenancy of the house into what’s called tenants in common, and that is an imaginary line down the middle of the house, it does not haveto be 50/50, but it normally is. Now the husband owns 50% and the wife owns 50%. So they still own 100% ofthe house, but they do not own it together, they each own 50%. The husband and the wife can then go and write new wills, and say, “I do not want to leave my 50% to my spouse. I want to leave it to a trust”. There are a couple of ways to do this, but the normal way is where you would use what is called an interest in possession trust, and you then say, “I would want my wife/husband to live in the house for the rest of their days, so he can enjoy his half and the deceased person’s half for the rest of his days”, but the capital value of that house passes to children and grandchildren, and in that way, it is not the husband’s house. Effectively, he has the equivalent of a lease to live in it, as it is not his house. And therefore, if he then goes into a care home, in that scenario he only owns half of the house, his half, not the deceased wife’s half, and that can preserve half the house. There are some arguments about whether the splitting of tenancy is deliberate deprivation. So if you are going to do it, the sooner the better. I have not seen any cases where the local authority have successfully challenged that, but possibly I have missed one. But again, you are better to do it. I always urge all people to do it, if it does not work, you have wasted a few quid on legal fees, but I think moreoften than not, it should work.

 

Martin Stanley 

Scott, thank you for that. Another question. Scott, you spoke earlier, not only about long term care, but also about the importance of wills and also having a document to make sure that people can look after your interests when you cannot make your own decisions. There is a question by someone who did not want to givetheir name today, but they have asked, “are you recommend solicitors STEP solicitors, now STEP I should explain to people, it is the Society of Trust and Estate Practitioners, which is a particular part of the legal profession that specialise in those areas. So do we recommend step solicitors for wills?

 

Scott Gallacher 

Good question. Certainly the person at Rowley’s that was dealing with it was STEP qualified. They have just left, I have not checked on the replacement, so that would be a good point, to check. You can use your own solicitor. We are obviously not overly concerned on the exact person, provided that they are doing a good jobfor you. Of course, if it was one of our clients and we were liaising, we would obviously give a financial advisor’s second opinion. We are not solicitors, quite clearly, but we understand the broad principles of what people should be looking at. So I think a combination of the client, a good, independent financial advisor looking after you, and a good solicitor, who is preferably STEP qualified, writing the will, I believe should ensure that everything is done in the right order. But I think it is that joined up financial planning that is key.

 

Martin Stanley 

Thanks, Scott. A question here from Robert. I am glad to see Robert asking questions tonight, he is a long term friend of Rowley Turton and a colleague of ours. He has asked, “does the will trust, where you leave 50% of the house gifted to a trust, rather than an individual, on the first death, does that work for IHT purposes?” I think that is very similar to what you were saying a moment ago about the house being split in half. Scott, just expand onthat a little, briefly.

 

Scott Gallacher 

Firstly, splitting the house in half itself does not necessarily change the IHT treatment of these things. I think where you would need to exercise care is, the inheritance tax rules changed a number of years ago, to create what is called a residential nil-rate band, whereby if your house is left to direct descendents, generally children and grandchildren, then it is, up to £175,000 per person, so £350,000 per couple is exempt. That is part of this million pound per couple figure that I mentioned earlier, so it is important not to double count it. That could be lost if it was left via the wrong type of trust. For example, if it was left to a discretionary trust, then it is not left directly to children, then you probably would lose that residental nil-rate band, so that could be dangerous. Now if your assets are less than £650,000 that is not necessarily an issue, but it is a factor. However, if it is left to this interest in possession type trust, because the right to enjoy your house is essentially left to your spouse, but the capital value is generally passing to your children or grandchildren, that would normally be fine. Again, I you would have to be careful that the will and the will trust was set up correctly to ensure that you did take that into account, but a good solicitor should be more than capable of ensuring that it is the right side, and there are things that we would go through with you and obviously we would expect the solicitor to check aswell.

 

Martin Stanley 

Thank you Scott, we have time for a couple more questions, I think. John asks “if my Mum goes into a home and my Dad still lives in the house how can they take the house into account for Mum while Dad is still living in it.” What is the position there Scott?

 

Scott Gallacher 

I mentioned at the start that whilst this £23,250 figure for assets is generally the starting point and the house is ususally included in that figure, if you have a spouse or civil partner remaining in the house than typically the house is exempt, if you have a disabled relative living in the house, so perhaps the son of the person needing care is in the house, or if there is a older relative living in the house, generally somebody aged 60+, although the typical thing is two spinster sisters whereby one who owns the house goes into the care home, and then without this provision the sister would be made homeless, then the house is normally exempted. In most situations with most couples where only one person goes into a care home, the house is generally excluded, so that is usually not an issue. Of course, it becomes a factor if both parents go into a care home, or if the person who is left in the house dies. Even if you felt that you did not need to do the severance of tenancy because Mum is still at home and she is still healthy and Dad is in a care home, so the house is fully protected anyway, if Mum was to predecease Dad, and it is sod’s law because we tend to think that it is the person with the poorer health that will die first, sod’s law is that they tend to be the person that goes second and the person who is running around caring for them more often than not goes first, and that thencould be problematic, so people need to think about these things about things and be proactive.

 

Martin Stanley 

Thank you, Scott. We have a question here referring back to something you explained earlier on, which is this problem about deliberate deprivation and giving things away. You explained that if you give assets like the house or other things away to children, then the local authority can effectively count it back into the calculation because you have deliberately deprived yourself. Sheila here says that she is concerned, “you said that there is no seven-year rule, does that mean I simply cannot ever gift anything to my children”.

 

Scott Gallacher 

No, not at all. It is primarily down to intent and to some extent the time scale comes into this. The best case of this where somebody did it on a ridiculously short time scale and it was not counted was with a gentleman, it was not one of my clients but a case that I read about, where he was sent home from hospital to essentially die, he was at the end of life, but part of that was that he could not be cared for at home, and his son still lived at home, so he went into a nursing home, and at the same time he gifted the house to his son. Now his argument was that “I wanted to provide for my son”. He was actually in the care home for a longer period than people expected, I believe for several years, and then died with his only real asset being the house. There is a argument about whether gifting the house was deliberate deprivation, he has literally given it away as he went into a care home, so you cannot get any more deliberate than that. But it was down to intent, and the argument was that he was sent into a care home effectively to die, he was expected to live for a matter of weeks and he had some savings to cover that cost, and the house would have been disregarded anyway (there is a 12 week disregard which we can chat to people about seperately), and therefore if he did not expect to have to pay for care beyond his savings, how could he have gifted the house in order to avoid care fees? Equally if I won the Euromillions (fingers crossed) and was to give away £50 million out of my £100 million, then the other £50 million I am not expecting to use to pay for my care, if I then subsequently blew it all on unwise investments then the local authority might argue, but I would argue that I did it for inheritance tax planning, I was not planning to pay for it. It is not only about the timing, but the timing is an important factor.

 

Martin Stanley 

We have time for one last question – “My Dad has lost capacity, he cannot make decisions for himself anymore. How does that affect what happens with regards to care fees and making decisions about care fees?”

 

Scott Gallacher 

That goes back to a point I made earlier about it being difficult if you do not have a Lasting Power of Attorney (LPA) (Medical or Financial) it can be difficult for families to make decisions. I urge you to sort these sooner rather than later. However, in practice how the care system tends to work is with a common sense approach where, if mum hs gone into care and there isn’t a Lasting Power of Attorney in place, the care providers will typically listen to the daughter’s or the husband’s instructions for care because otherwise the system would fall down. That works fine in theory until there is a confilct between the family and the care provider and is where you see stories of children kidnapping parents or grandparents from the care home. Funamentally this hs happen because there isn’t a Lasting Power of Attorney in place (medical) and the daughter has disagreed with care decisions being made but has no legal right to challenge this. If you think about this logically, if you’re older and your husband or your daughter rang your doctors and asked about your test results, the doctor would tell them that they can’t give that information due to Data Protection. Of coursem when we start getting older and start losing capacity this isn’t typically what happens but that is what should happen. They should say that they can’t provide those results as you don’t have a Lasting Power of Attorney. But if you don’t have a Lasting Power of Attorney, people tend to get away with it until things go wrong or there’s a disagreement. But also, in terms of financial matters, this is much harder as banks don’t tend to take that view. So if you don’t have a Lasting Power of Attorney (financial) and say for that sake of argument you want to downsize to a bungalow and you suddenly lose capacity during that process then the solicitor will turn aorund and say “I’m sorry you haven’t got capacity” or “Your partner doesn’t have capacity you can’t new the new house, or sell the old house”. So that is dangerous, where is if you have a Lasting Power of Attorney in place, you can say “Hang on a second, I have this piece of paper, John’s appointed me”, possibly you have to ring the kids to get it from home but there’s no major issue. Without this, there are ways and means around this but that generally means applying to the courts and incurs additional costs and may take some time.