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How much is long term care going to cost me?

Statistics show that we are generally living longer and during this time we are accumulating more asset wealth such as property and inheritances. The result of increasing life expectancy, aligned with the ever increasing cost of care, is that many people are going to be faced with some spiteful bills in their later years.

Trying to plan for this potential outcome would be a prudent move, but it can become difficult due to many unknown facts such as to determine exactly when you are going to die. Add into the mix the issue of how a local authority calculates whether an individual is entitled to help with the cost of residential care; it all can become very complicated. Presently you are only entitled to financial assistance if you have less than £23,250 as your entire net worth.

The use of investment bonds is a good way to remove assets from that financial calculation as they have a life assurance element within them and they are excluded when assessing total asset value. For example, if you were to place £60,000 into a bond in your early 40’s and not take any withdrawals upon reaching your 80’s and you are now in need of financial assistance the value of the bond (including growth) would not be considered by the local authority. You could take withdrawals from the bond but they would be classed as an income payment and would be taken into account when conducting the financial assessment. Well, what if I just stop taking the income? I hear you say. You can do this, but you would have to prove that this not a ‘deliberate deprivation of assets’.

Deliberate deprivation of assets is giving away or disposing of assets to reduce the estate below the £23,250 in order to qualify for financial assistance from the local authority. This can become quite tricky as the Council will look to see if there was ‘motivation’ to do so. You may have experience of a relative or friend that had made no provision and ending up fully funding their care, which resulted in them exhausting all of their assets.

Let’s assume that Mr Jones didn’t put money into a bond in his 40’s but got to 70, and starts thinking that he made need to go into care. He then decides to put most of his estate into a bond (via a trust), and for Inheritance Tax Purposes this could seem sensible planning. However, should the local authority become aware that this investment was ‘motivation’ to reduce his estate to benefit from the local authority financial support; it could adjust and reclaim the value of the investment for the calculation of the assessment for financial support. Councils are coming under increasing pressure with funding from Central Government, and will, therefore, be very vigilant when assessing financial support.

All of this presents us with a dilemma. In your 40’s you are likely to have other financial considerations such as mortgages and children that will be superior to long-term care provision for yourself and or partner. Trying to accommodate all may be a very hard task, but planning and more importantly timing of investments could help reduce the burden later on in life.

” In your 40’s you are likely to have other financial considerations such as mortgages and children that will be superior to long-term care provision for yourself and or partner “

Lloyd Fernley – [email protected]