Long-term care

Paying for the cost of care

Long-term care may be required if you become ill or suffer a disability that makes you unable to carry out your usual activities of daily living, with the probability that this disability will continue over a long period. More often than not, it is the elderly who require care over the longer term and it is typically occasioned by either increasing frailty due to ageing or the chronic aftermath of acute conditions such as a stroke or a fall.

Long-term care may also be required if a person is mentally impaired.

The most common form of impairment for elderly people is dementia, and a common form of dementia is Alzheimer’s Disease. A person suffering from dementia will need personal supervision and assistance to carry out their normal daily activities.

The care required can take many forms, from simple domestic assistance to medical interventions and may be provided in a care home or in the person’s own home. Many people would have hoped the National Health Service (NHS) would look after them. But the NHS no longer covers all the costs associated with the care of incurable conditions in old age. Instead you may be forced to buy “insurance” to pay out if nursing or residential care at a later stage is needed.

Since the Community Care Act, which was passed in 1990 and took effect in 1993, that task has been transferred to Local Authorities. The NHS will only provide and/or pay for the Nursing Care Service Component of a person’s long-term care service needs. All other costs and services associated with long-term care are the care recipient’s responsibility unless they qualify for Local Authority assistance. Although in Scotland from July 2002 Free Personal Care has been available.
Anyone currently with assets of more than £23,000 will be expected to pay for their care needs. In most cases, the value of any property owned will be included within this sum.

However, there are certain circumstances in which the home is excluded. And those with the foresight to plan in advance may want to make sure they can take advantage of this, particularly if their remaining assets are less than the £23,000 limit.

A property will automatically be ignored if a surviving spouse or partner lives there. This rule extends to other relatives aged 60 or over who live in the property. So if a daughter, niece or brother has moved in as a carer, this could help reduce future care costs. More importantly, many couples don’t realise that they may be able to take the home out of the care equation altogether by altering the way in which it is owned.

Most couples buying a property do so as “joint tenants.” This ensures that on the death of either party their share is automatically transferred to the other. However, it is possible to own a property as “tenants in common.” This gives both parties the freedom to leave their share of the home to whoever they like.

If this is done, and half the home is passed onto the children on the death of the first spouse or placed into a trust on their behalf, then it is possible that the whole home may be disregarded at a later stage if the surviving spouse needs nursing care.

The home should also be disregarded if the care needs are classed as “temporary.” If the value of your assets excluding your property is less than £23,000, you should not have to pay for care for the first 12 weeks. Even if your assets are more than this initially but are then used up paying care home fees, you should be able to apply for this 12-week disregard once they drop below the £23,000 limit.

It is important not to fall into the trap of simply giving your home away to your children. The local authority has the right to obtain assets that have been deliberately disposed of to avoid paying fees. However, the “tenants-in-common” ownership does not fall under these rules because the gift is made only on death.

If your care needs are overwhelmingly medical and are deemed “complex and unstable,” you may qualify for NHS-funded “Continuing Care,” which means all bills are met in full, including residential costs. However, the strict eligibility criteria mean that few people qualify, and even those who do are reassessed regularly.

If their condition stabilises, their care costs will revert to local authority control, which means patients will be assessed for their ability to pay. But if a relative’s condition worsens, you can ask for them to be reassessed for continuing care. If you feel that a relative has been wrongly assessed, you can also appeal to your local social services.

Even those who have to pay their own care costs should ensure they receive the correct benefits. The main one is Attendance Allowance. It is not means-tested and pays a weekly tax-free amount, depending on your level of need. If you are receiving care in a nursing home, you should also be eligible for the Registered Nursing Care Contribution, paid in England. This is paid direct to the home and offsets the cost of your care.

In Scotland, those who need nursing care will also be paid a contribution towards personal care costs. However, those in Scotland do not claim Attendance Allowance as well. Many in Scotland still have to contribute sums towards long-term care costs.

Many families may still have to pay the majority of the care costs. There are a variety of options to consider, and professional advice should always be taken to evaluate which best suits your circumstances. The main options are:

A deferred option scheme - if your other assets are below the means test limit you can ask the local authority to pay care costs and they will place a charge on your property to be paid on your death. This potentially allows your estate to benefit from future property price rises, although in the current climate this may not be so relevant

A care fees annuity - from the proceeds of the sale of the home you can buy an annuity to provide a guaranteed income. This means that the price of care is capped and protects the remaining capital. But for the relatives of those who die shortly after going into care it could prove a more costly option

Investment options - many people choose to sell their home and invest the proceeds, using the income generated to help pay care fees. Alternatively the property may be rented, with the rental income going towards care. But this means that the family has to maintain and manage the property

Trusts
A gift-and-loan trust can be used to fund long-term care, with the added benefit of reducing Inheritance Tax on your estate. You place a small amount, such as £1,000, in trust and then lend a large sum, such as £100,000, to the trustees.

You may not benefit from the trust by law but you can have the loan repaid, typically at 5 per cent annually, which can then be used to pay for care fees. The trustees can invest the capital, and the aim is that it grows in value outside of your estate.

Equity release
Even with recent falls in property prices, many elderly people may have significant equity in their homes. Equity-release schemes are loans against the value of their home, with interest deferred until the property is sold, normally on death.

Most lifetime mortgage schemes allow you to borrow between 20 per cent and 45 per cent of the property’s value. Unlike selling the property to raise funds for care-home fees, you will still benefit if the housing market gains value and you can also keep your property.