Long Term Care
Contents
Welcome to‌ Long Term Care Whether it is for you or a loved one Long Term Care can affect anyone, and planning is a crucial part of tackling this hurdle. Advice and support is important at this stage, and should be sought out to help guide you through the process more smoothly. If you have the correct support in place it can make the transition a lot easier. Long Term Care comes under a range of different definitions; it could mean care within your home via a nurse/carer, moving into a residential apartment whilst keeping your independence or moving into a care home. These services need to be paid for via Government funded schemes, self-funding or a combination of both. You need to research your options in order to give you some idea of what these services will cost. This is where professional help may be required. It may seem that there are an overwhelming amount of options for funding Long Term Care. This brochure will help guide you through specialised areas of Long Term Care. There is a wealth of further information available that deals with many different topics highlighted here. (You can find this information on our website; www.beaconwealthmanagement.co.uk) If you would like a complimentary first meeting, with one of our advisers, you can find their details on page 8 or contact the office direct: T: 01480 869466
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E: info@beaconwealth.co.uk
Funding Long Term Care: 1. Local Authority and NHS Funding Types of Self-Funding 2. Immediate Care Fee Payment Plans 3. Investment Bonds 4. Tax Efficiency 5. Estate Preservation 6. Equity Release Types of Equity Release 7. Lifetime Mortgages 8. Downsizing 9. Other Options 10. Emergency Funding and Insurance 11. 6 Steps in arranging Long Term Care 12. About Us 13. Meet The Team Contact us
The content in this publication is for general information and use only and is not intended to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon the information without receiving appropriate professional advice through examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Mortgages are not regulated by the Financial Conduct Authority (FCA). Your home maybe repossessed if you do not keep up repayments on your mortgage. The value of your investments can go down as well as up. Beacon Wealth Management Ltd
Funding Long Term Care Local Authority and NHS Funding Your circumstances will affect how you fund your Long Term Care, if or when you need it, and there are a variety of options from self to part funded. How much you have to pay will ultimately be down to your health, mobility, and how long care is needed. Planning It is always a good idea to set out a plan for your needs and expectations. If you know what sort of Long Term Care is required, do some research and find out rough costs in order to make a budget plan. NHS Funding There may be some form of outside funding available, for example, the NHS continuing care scheme offers free continuing care, funded solely by the NHS wherever you need it, at home or in the hospital. However, you must satisfy the criteria set out by the NHS, which usually means that you need a nurse rather than a carer.
Local Authority Funding Your local authority have a responsibility to fund or provide Long Term Care. They may be able to help you with the costs of residential care or help you to adapt your home so you can remain there for longer. This form of funding is tested by a financial assessment. Benefits It is important to claim any benefits you may be entitled to, information can be found via your local Government authority. However, even if you do qualify for any of these schemes, it may not be enough to cover your expectations within Long Term Care. This is why it is paramount that you start thinking about selffunding early. If you have a plan in place it will be much easier to carry out when the time comes. We will lay out some of the key areas of self-funding within Long Term Care to help guide you through the process.
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Types of Self-Funding Immediate Need Care Fee Payment Plans An Immediate Need Care Fee payment plan is a type of annuity contract. An annuity is a form of insurance that provides a constant income in exchange for an upfront lump sum investment. This will guarantee an income for life to fund your care.
This type of plan would not be suitable if you do not need to pay for care immediately or the care is only for a short period of time. Make sure you check if you qualify for NHS funding, as self-funding could be a waste, instead your money could be used within more valuable investments.
The plan will aim to cover the shortfall between your expected income and the care costs you incur for the rest of your life. The price of the plan will depend on a variety of factors:
Immediate Need Care Fee payment plans are like a balancing act. You need to fund care immediately and will have secure regular income to fund your care, but once you have taken out the policy there is no turning back. If you die earlier than expected the money invested is difficult to claim back.
Your age State of your health The level of income you need Your life expectancy.
Criteria This plan is only suitable if you are already in a care home, about to move into one or you are receiving care at home and it needs to be funded immediately over a period of time. Capping Costs Capping the cost of your care will hopefully safeguard your remaining capital. Certain clauses can be put in place if you die early, meaning your beneficiaries could get some of the payments back, however, this will depend on individual providers.
Advantages: Aims to cover the shortfall between expected income and the care costs you may incur Suitable if you are already in a home or about to move into one Options to safeguard capital Disadvantages: Unsuitable if you do not need to pay for care immediately Not suitable if you qualify for NHS funding Clauses can prevent you from leaving the plan early You can lose your money if you die earlier than expected
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Types of Self-Funding Investment Bonds Investment Bonds are a way to gain regular returns from the money you have invested. They can ultimately offer higher returns than from other payment plans due to the nature of the fluctuating markets. However, this will mean they are more vulnerable to the changeable markets. An Investment Bond is similar to an Immediate Care Fee payment plan in that it is invested in a life insurance company, but that is where the similarities end. With this type of investment, the company will invest the money for you in a variety of different funds, until you either cash it in or die. As this money is invested in life insurance, you should receive some cover within the policy, and on death it may pay out slightly more than the value of the fund. Be aware, the fund is still vulnerable to fluctuations in the market. Investment Bonds are ideally used for medium to long term investments and, therefore, you may not be able to access your money for the duration of the investment. Note: Relying solely on these fluctuating investments to fund your Long Term Care may not match your attitude for risk. For this reason they are not recommended for everyone.
Advantages: The return on your investment can be higher than a cash savings account In some cases the fund value might be disregarded in a financial assessment If you only use the returns and keep hold of your capital, the investment bonds should produce the money needed to fund your care and be able to pass down a lump sum to your beneficiaries Providers will allow you to withdraw up to 5% of the original investment each year without penalties (check this with your provider first) Disadvantages: You will need to tie up your money for at least five years; penalties could be introduced if you cash the bond in early No guarantee that the returns will cover the cost of your care Extra charges may apply Beacon Wealth Management Ltd
Tax Efficiency There are two key areas of taxation that need to be considered when planning Long Term Care:
Tax position of the patient The implications of Inheritance Tax (IHT)
There are many complex areas of taxation and how much you pay will depend on your estate, which could include properties, assets and income. If one of the partners is in care or about to move into a care home, then this will need to be funded. You must consider what happens if the other partner needs care later on in life; funds need to be set in place for both parties. Tax efficiency can affect how much money is left over for the other partner, it is crucial to have a plan laid out as to how the care will be funded. Gifting money or assets This involves ‘gifting’ sums of money or property to friends or relatives. Gifting money should be handled delicately as it could cause undue stress amongst the receiving party. Therefore, involving a third party who is qualified and can give professional advice is important.
Tax liability Most pension income is potentially taxable after personal allowances have been considered. However, income from other sources might be more or less tax efficient. For example, investments can have the potential to deliver a tax free or tax deferred income. Some investments can take advantage of the annual Capital Gains Tax allowance. Other investments can roll over gains or are exempt from IHT after a defined period of time. Inheritance Tax (IHT) There are ways of effectively using IHT allowances more than once. The last survivor of a relationship may be able to use two IHT allowances and enable assets to pass to future generations tax efficiently. Due to the complex nature of taxation, it is a good idea to seek Independent Financial Advice to make sure you are getting the full picture when it comes to tax efficiency and Long Term Care.
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Estate Preservation An ‘estate’ is broadly defined as a person’s money, possessions and property. On death the estate would be added up and divided as per the person’s wishes. If an individual requires Long Term Care, the cost can decimate the value of an estate, especially if care has been delivered for a long time. An individual needing care might wish to pass their estate on to the next generation. It would be disappointing to find the majority of the estate had gone into care fees after a lifetime of accumulating a significant legacy. Consider the impact this might have on a surviving spouse or partner who might require help themselves at a later time. Planning for the possibility of Long Term Care at an early stage is a powerful strategy for ensuring your estate is distributed according to your own wishes, rather than someone else’s. Frequently, advance planning has not occurred, this can lead to whole estates being used up for just one person’s care, leaving a surviving spouse or partner with no means to manage their own care.
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Equity Release Equity release schemes are for people who have nearly or completely paid off their mortgage. These schemes are not always considered the best option, but are more of a last resort. If you have no plan in place equity release can be a viable option. Equity release explained It is a form of benefiting from the value of your home and gaining access to some of the money tied up in it, whilst still living in the house itself. These types of schemes do not exclusively have to be used to fund Long Term Care, but due to the fact that it allows you to have access to one lump sum, it is often used for this purpose.
Advantages: Provides a guaranteed monthly income or large lump sum (used for any purpose) Equity-release schemes can help reduce your estates vulnerability to Inheritance Tax (IHT) You can remain living in your home The equity released on your main property is tax-free The loan is usually repaid on death or sale of property Any money left over from the sale of the property can be passed to your beneficiaries
How do they work? As with most schemes there are different options to suit your criteria, for example, downsizing and lifetime mortgages (explained further within this brochure.) Planning Alternatively, you may wish to remain in your home for as long as possible, add this to your plan and figure out whether you will need to downsize or implement some form of equity release to adapt your current home.
Disadvantages: Inflexible to a change in circumstances (need providers permission for someone else to move in, or selling up early can incur a loss on the estate) Extra fees will usually need to be paid It is your responsibility to keep your home in good condition. You must set aside money for maintenance costs. You will be required to have buildings insurance
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Types of Equity Release Lifetime Mortgages Lifetime mortgages are ideal if you want to release money tied up in your home whilst remaining in the property. With any mortgage there is a capital amount, and the interest on that amount will need to be paid. Lifetime mortgages are different to regular mortgages. You do not have to make any monthly repayments depending on your circumstances. How much equity is released depends on: your age, how much of your mortgage is paid off and what your property is currently worth. Many schemes include a guarantee that the amount owed will never exceed the property value.
There are three different lifetime mortgage options: Interest-paying mortgage:
Fixed-Repayment lifetime mortgage:
Fee Breakdown for Lifetime Mortgages: -
An arrangement fee- allocated to the mortgage lender
You make repayments on some or all of the interest on the loan monthly Upon selling your home the amount you originally borrowed is repaid You have the option of a fixed or variable rate of interest (variable rates will fluctuate)
Interest is added to the loan A repayment amount is agreed in advance (that is higher than the loan) You have to pay the provider the higher amount when your home is sold (works well if you live longer than expected, but not so well if you have to sell your home earlier)
Roll- up mortgage:
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Early repayment charges- if you end up having to repay the loan before you die or move into a care home
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Buildings insurance- this is a requirement when you invest in a lifetime mortgage
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Legal fees- you will generally accumulate legal fees with any mortgages
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Valuation fees- for the provider to have an idea of what the estate is worth an evaluation will need to be completed
Interest is added to the loan You do not make any regular payments The original amount borrowed plus the ‘rolled-up’ interest will be repaid when the home is eventually sold The amount of interest you owe will grow and, therefore, the total to be paid back will accumulate quickly, as no repayments are being made throughout the term
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Types of Equity Release Downsizing Downsizing is another way of gaining money from your property to fund Long Term Care. This is where you sell your existing home and invest in a less expensive home instead, to free up some money. Downsizing has a lot of benefits compared to other forms of funding, and can be more cost effective than other equity release options in the long term. It is also a great way of having something to pass on to your family. This can be used in conjunction with a care fee payment plan, as the lump sum you pay can be generated by downsizing. Downsizing has extra benefits that you might not have considered. A smaller home such as a bungalow or flat may be easier to maintain and adapt to your needs, providing you with the opportunity to stay in your home for longer. Always make sure you have calculated all of your costs and expenditure, so you know that downsizing is not putting you in a worse position with moving fees and adapting/renovating your new home.
Advantages: Remaining in your own home Adapt your home to your specific needs Potential to have a large lump sum at the end May be more cost effective than other equity release options
Disadvantages: May incur costly moving fees Your home may not be suitable to adapt Could cause undue stress whilst moving home
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Other Options
Money Has Run Out If your fund has run out and you are still in need of care, there are a few things you can do: 1. Arrange for a care assessmentThis will update your circumstances from your last review and you may now be eligible for local authority support. Alternatively, your situation may have worsened and you may now need to move into a care home. Either way the funding will need to be amended. 2. Arrange for a financial assessmentThis estimates whether you qualify for funding and will take into account your savings, income and how much assets are worth.
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Emergency Funding and Insurance Emergency Funding As a last resort, if the need to fund care is suddenly forced upon you, some local authorities may help with the first twelve weeks of care home fees. This can only happen if:
You own your home (which you are leaving empty) Your capital comes to less than the capital threshold for Long Term Care Your income does not meet the care home fees
Depending on your circumstances the Local Authority may disregard your property for up to twelve weeks in respect of the financial assessment that will be completed. Claiming On Insurance To Cover The Costs Of Care You may be able to claim on an existing insurance policy, which will help towards the cost of care. Often people have forgotten about these policies. Such policies could include:
Life insurance with critical illness cover
A standalone critical illness policy
Over 50’s plan
Income protection cover
Joint policy taken out with your spouse or partner
Cover taken out on your behalf by a current or former employer
If you are unsure of whether you have any of these policies, it is a good idea to seek Independent Financial Advice where you will be able to find out what policies are still held in your name or on your behalf. Beacon Wealth Management Ltd
6 Steps In Arranging Long Term Care: 1. Inform A RelativeInform a relative or close friend that you are considering Long Term Care. Hopefully they will be able to support you through this process. 2. Seek AdviceIdeally from an Independent Financial Adviser who has access to whole market knowledge and can give the best advice for your circumstances. Look out for specific organisations that deal with Long Term Care issues, SOLLA (Society of Later Life Advisers) being one of them. They accredit Financial Advisers with qualifications to advise on specific issues within Long Term Care, at Beacon Wealth Management we currently have two SOLLA accredited advisers (details found on page 13). 3. Have Your Health and Social Needs AssessedYour GP can refer you for health reasons; everyone is entitled to an assessment regardless of financial status. 4. FundingMake sure at this stage you have funding in place to allow you to move to the next step in processing your Long Term Care. 5. Remaining In Your Own HomeFrom adapting your home to maintaining your social life, some grants and funding are available to help you achieve this. 6. Implementing careMake sure the allocation of estates, funding and personal care plans are in place.
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About Us
Meet The Team Tony Larkins APFS Chartered & Certified Financial Planner. (Managing Director) Specialising in personal and corporate financial planning as well as Pensions and Investments tlarkins@beaconwealth.co.uk Adrian Banks Dip.PFS, Cert CII (ER & MP) SOLLA & Independent Financial Adviser
Chris Wills Dip.CII Independent Financial Adviser ..
Specialising in long term care and financial planning for later life clients
Specialising in financial planning ..
abanks@beaconwealth.co.uk
cwills@beaconwealth.co.uk
Martin Eaton BSc, CEFA, CeMAP Independent Mortgage and General Insurance Adviser
Mark Graddage Cert PFS, Cert CII (MP) Business Support Manager ………………………….
Specialising in mortgage and general insurance
Specialising in mortgage and general insurance
meaton@beaconwealth.co.uk
mgraddage@beaconwealth.co.uk
Beacon Wealth Management Ltd
Beacon Wealth Management Ltd voted the best independent financial advisers of the year, in the East of England 2013.
Beacon Wealth Management Ltd Chartered Financial Planners The Old Chapel Thrapston Road Kimbolton Cambridgeshire PE28 0HW T: 01480 869466 F: 01480 869477 info@beaconwealth.co.uk www.beaconwealthmanagement.co.uk Authorised and Regulated by Financial Conduct Authority. Registered in England and Wales No.526604