How to pay for long-term care
Dementia costs the British economy twice as much as cancer at £23bn. But both diseases require care that can prove expensive.
How to pay for long-term care Photo: GETTY
Many families do not know what help is available from local authorities and others fall victim to means tests that critics claim punish thrift.
The Government plan for free personal care for 250,000 people in England was deemed "unaffordable" by Lord Warner, a former health minister who served in Tony Blair's administration, who claimed it would cost more than £1bn to implement.
But the Lords voted against a motion to delay the home care changes, which would affect about half the elderly now receiving care in their own home. Lord Warner said: "Many of us have considerable doubts about our ability to implement this and not let people down after the promises that have been made."
It was revealed this week that dementia costs the British economy twice as much as cancer at £23bn. But both diseases require care, and this figure has highlighted the enormous cost of long-term care. Many individuals' estates will be worn down to nothing to pay for their care – leaving nothing for their children and grandchildren.
If your estate is worth more that £23,000 you are judged by the state to be able to pay for your own care. Care costs fall into four categories.
• Domestic care – the care of your home for those unable to do this themselves, such as cleaning and cooking.
• Personal care is care of an individual, such as washing and feeding.
• Nursing care is performing medical duties, such as administering medication and changing dressings.
• Accommodation costs, such as the residential element of care home fees.
As most people's homes will be worth more than the threshold, you have two options. You can either divest yourself of your assets – subject to self-deprivation rules, discussed below – and rely on state-provided care or pay for care yourself.
While giving your assets away protects them from being drained by care costs, this option leaves you vulnerable to the level of care the state deems appropriate and when and where it is administered.
Irene Borland, of care fees advice providers NHFA, warns that if you are able to pay for care, for the most part you are better off doing so. "Money gives you choices," she said. "You should ask yourself 'Do I want local authority care?' If you take advantage of state care you could struggle at home for longer than you'd wish to, or end up in a home that is not quite as comfortable as you would like."
There are means-tested benefits available to people in England and Wales. Scotland has its own system that provides free nursing care – although not free personal or free domestic care.
Benefits are awarded depending on the level of care that you require rather than your condition, so one person with lung cancer may be entitled to more care than another person with the same disease.
If you do take advantage of local authority care, make sure you, or someone on your behalf, asks for you to be reassessed should your requirements change or condition deteriorates.
This way you can ensure you are getting the right level of care. If a certain home is no longer able to care for an individual – they need continuing care for example – make sure they are reassessed so that funding can meet their care needs. Benefits include Disability Living Allowance, Attendance Allowance, Employment Support Allowance and Carers Allowance. Further information is available from your local social services department or the Citizens Advice Bureau.
Andrew Ketteringham, from the Alzheimer's Society said that the system is far from simple, however, and individuals often fall through the gaps – especially if they require specialist care.
"Accessing funding for care is complex and complicated by the fact that people with dementia will have both health and social-care needs. People with dementia are hit the hardest by the current care charging system and many are spending their life savings on what is often poor-quality care," he said.
If you do choose to divest yourself of assets there are a number of ways to do so. Placing property and other assets in trust, or signing over the deeds to an offspring, will mean that they no longer are counted as part of your estate.
If you reduce your estate to less than £23,000 you will qualify for state care and be exempt from inheritance tax. However, you may have to prove that your reason for divesting your assets was not to avoid paying for care.
For example, if you are diagnosed with cancer and then promptly set about dividing up your estate you may find that the local authority has a claim on a portion of your assets.
Ms Borland recommends planning. She advised: "When you turn 65 you should get your affairs in order. Signing over your house to your children well in advance of any care needs will protect the property from having to be sold to pay for care fees."
However, this is not a step to be taken lightly. How much do you trust your children – and, if married, their spouses? Be aware that you could lose your house if the spouse to whom you have given your home is divorced by their partner or is made bankrupt or, for example, a daughter proves less loving than you supposed. Before giving your home away to adult children, go and see King Lear.
Placing property in trust means in most cases you cannot draw on the funds in the future. Under a discretionary trust, however, you can have some money back if the right provisions are written in, such as in a loan.
But any money transferred back into your hands will be subject to the financial assessment. Moving money into a trust can also fall foul of the deliberate deprivation rules, which, like anti-avoidance legislation for inheritance tax, is far-reaching and has no time limit.
A number of providers such as Axa (under the name PPP) and Aviva used to offer long-term-care insurance. They have withdrawn their policies, however, and existing customers have seen premiums increase. Axa said it was no longer viable to offer the insurance as claims outpaced estimates.
Danny Cox, of Hargreaves Lansdown, warns that although a good idea in theory, long-term-care insurance can be expensive. Partnership still provides long-term-care insurance.
Life assurance investment bonds are sometimes not counted as part of your estate. But local authorities interpret the value of these bonds in different ways and will not automatically exclude them.
Another option is to buy an immediate-care annuity. Immediate-care annuities, sometimes called point-of-need annuities, can pay a tax-free income to help meet all or part of the costs of long-term care.
Benefits are only tax free if paid to the care provider direct. Income rates can be as high as 30pc because the annuitants' ill health mean they are unlikely to receive many years' payments.
Mr Cox claims this is one of the better options for those facing the costs of long-term care. "Unlike divesting your assets, you can buy a long-term-care annuity after having been diagnosed with an illness or disease.
You are guaranteed a set income for life and there are certain inheritance tax benefits as well as the cost of your annuity will not be included in your estate after you die," he said. Axa PPP and Partnership are the two main providers of immediate care annuities, further details can be found on their websites www.axappphealthcare.co.uk and www.partnership.co.uk
You should consult an independent financial adviser when planning to fund care fees. NHFA offers an advice line (0800 998 833) and can explain care fees legislation and regulation, associated benefits and rights to assessment by local authority and the National Health Service (NHS).
It can also clarify the difference between social and personal care and the rules governing non-means-tested NHS continuing care. It can also advise on legitimate actions that can be taken to protect assets and the rules regarding potential deprivation of assets. Age Concern/Help the Aged (which are combining to be called Age UK later this year) are also very helpful and can be contacted on 020 7278 1114.
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