Planning for Care Fees

Older woman on a swing talking to her husband

You may feel that care fees funding is an odd topic to include in a website dedicated towards prosperity. Certainly, the thought that you might end your days living in a nursing home can be as distressing as thinking about your death. It is only natural to want to push both to the very deepest recesses of your mind.

The good news is that the number of people living in specialist retirement housing or in care homes is relatively low; most older people live out their days in their own homes. The most recent figure available for the number of people living in care homes is approximately 421,000 people (Laing and Buisson survey 2019). This is just 4% of the total population aged 65 years and over, and still only 15% of those aged 85 or more. It will hopefully be encouraging that even when you are over age 85 you have an 85% chance of living out your life in your own home.

Reliance on state provision of care reduces choice. So with proper planning even if you will be one of those who will need to live in a care home, the very end of your life can still be spent in peace and security, surrounded by those who will care for you until your last breath. It can be a time to think back on so many memories, to be kind and bless those around you. Your final act can then be to pass on what is left of your prosperity to those you love and others you have decided to help.

As with any other type of financial planning it is important to do your care fees planning early enough so as to have the flexibility to prepare in the most tax efficient way possible.

Some do’s and don’ts with care fees planning

  • If you, or a loved one, are about to go into residential care it might seem attractive to purchase an Immediate Care Fees Plan. This is a form of annuity (i.e. a guaranteed income for life). You pay a single lump sum and the care fees are taken care of for the rest of your life apart from the possibility of annual fee increases being higher than anticipated. If you have no close family members this can give you peace of mind. Otherwise, in my experience over very many years, I can say that I have only had one client be better off by buying an immediate care plan. In every other case the client died earlier than expected having left the insurance company with a good profit at the expense of the remaining family members.


  • If care fees are on the horizon for you or your spouse/partner do change the family home into a tenants-in-common ownership rather than the usual joint tenancy. This will ensure that if the spouse/partner remaining in the home dies while the other spouse/partner is in a nursing home, their share of the property can pass directly to children or other family members. In doing so it will not be taken into account by the local authority when establishing whether they can assist with the payment of the care fees.


  • If the person needing care owns an investment bond (i.e. a type of single premium life assurance bond) then this should not be surrendered to help pay for care fees. This is because the Charging for Residential Accommodation Guidelines (CRAG) states that the surrender value of an investment bond has to be disregarded as a capital asset in the financial assessment for residential accommodation.


  • If the person needing care is taking regular withdrawals from an investment bond then these should be stopped if at all possible. They will then not be taken into account as part of the local authority’s financial assessment.


  • If the person needing care is receiving income from a trust then depending on the type of trust it may be possible for the trustees to stop the income payments so that they will then not be taken into account as part of the local authority’s financial assessment.


  • If the person needing care is taking regular withdrawals from a pension drawdown plan then these should be stopped if at all possible. The local authority will assume that the person is receiving income from the pension equivalent to the maximum level of annuity that could be purchased.


  • Where the person needing care has investments in Stocks & Shares ISAs, Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs) then these should be the last to be used to pay for any shortfall in care fees. This is because it is important that as much capital as possible is kept in a tax free environment. Where capital gains are created by selling other investments these will not be chargeable on death.


  • Where the person needing care has personal pension funds (not already in the form of an annuity) then again these should be left intact for as long as possible. This is because pension funds are generally not included in a person’s estate for inheritance tax purposes.


  • According to BUPA the average life expectancy in a nursing home is just 801 days (around two and a quarter years). There is, however, a considerable tail of long-stayers with 27% of people living for more than three years and with the longest stayer living for over 20 years. Because half of care home residents die within 462 days (around one and a quarter years) it is worth considering the use of equity release rather than selling the family home, particularly as empty homes often sell at a discount.


  • Don’t try to be too clever in terms of reducing a person’s assets to obtain local authority assistance. If a person is found to have ‘deprived’ themselves of capital by, for example, giving away assets knowing they will be needing nursing care, they can still be treated as having the capital in question.


  • Do take account of the effect of your actions on other areas of a person’s finances. For example, whilst putting a person’s home in an Asset Protection Trust could protect the property from being taken into account for care fees purposes, it could also result in an increased inheritance tax bill on that person’s death.


  • Where couples feel that a residential care home is a likelihood for one of them, they should separate any joint bank and investment accounts as this will reduce the amount that must be spent before local authority assistance can be obtained.


Care Fees Funding
For an overview of care fees funding please go to care fees funding
Care Fees Financial Planning
For ideas on the various methods of financial planning for care fees please go to care fees financial planning

Arthur Childs


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