Parts 1 and 2 of this bingeworthy series covered the harsh realities of the care system and the need to plan if possible. Here I will begin to look at the options that exist to fund your care, but this is a big area to cover so I am hoping for 3a to lead seamlessly into 3b like one of those ‘to be continued…’ episodes. We shall see!

If you can cast your mind back to episode 1, I mentioned that the average cost of a year in residential care is around £60,000.  It can vary significantly depending on individual care needs and by region, but in short, it’s expensive.

Episode 1 also mentioned a care needs assessment and a financial assessment and for the purposes of this article I will assume for the most part that you have received both, you require care in a home, and you are a self-funder – an individual with more than £23,250 of capital, and consequently beyond the scope for financial assistance from the Local Authority (LA). That said, I will refer to some areas of LA funding.

It is worth mentioning here that the financial assessment looks at capital held in the name of the individual needing care, and that jointly held assets are usually treated as belonging to each party equally. Thus, a joint savings account with £10,000 in it will be valued at £5,000 for the purposes of the assessment.

Some forms of capital should be disregarded from the assessment. Investment Bonds with a life cover element for example. Any secured debt such as a mortgage would be deducted.

One of your major capital assets is likely to be your home. This should be disregarded in certain situations and will be disregarded if your partner still lives there.

A word here on deliberate deprivation of assets. If the LA can prove that you have given away assets to reduce your ability to fund your own care, they can assess you inclusive of these assets.

From an income perspective, the LA will assume that you are claiming any benefits that you are entitled to so make sure that you are claiming them! Some forms of income will be disregarded such as Disability Living Allowance, but most forms of income will be included.

So, whether you have planned or not, from our scenario above you now need to fund your care costs….

Care home fees in my experience are usually charged monthly and you will likely have some income of your own to cover some of these monthly costs. Usually, this income is from pensions including the State Pension, but you may have income from other sources such as investment income, rental property income, State benefits and so on. In most cases, income falls short of care costs and the need is to cover the shortfall plus any personal expenditure you might have…your newspapers, hairdresser, Sky subscription etc. (other subscription television channels are available!).

Now we have identified the shortfall, we can look at how we might be able to bridge it. Before we do so however, a quick word on top-ups!

LA funding – top-ups

Where a financial assessment reveals the need for the LA to fund your care, one issue that might arise is that the LA funding received is below the amount needed to cover the costs of your chosen home.

In this situation someone may cover the difference for you (known as a top-up), perhaps a kindly friend or relative but this of course has implications for them that they would need to consider.

Now, back to our self-funder and the need to bridge that income v expenditure gap…

You may have accumulated investments that we can review (that plan that we’ve been talking about). We’d consider their original objectives and whether they can form part of our payments solution. If they can, we need to understand what they are invested in, how liquid they are, can they be income generating or accessed for ad hoc lump sum withdrawals, how are they invested, can they be utilised as they are or do we need to alter the investment products, underlying investments and so on. We will carefully consider your attitude towards taking investment risk alongside your capacity for loss, which is often much reduced at the point where care fees funding is required.

If investments and income are substantial, they may be sufficient to cover that funding gap. We can structure the investments appropriately and keep matters under review with you.

In the absence of substantial investments, you might need to sell your house. As mentioned in my first instalment, this won’t happen in some circumstances, but where you live alone the proceeds of sale may well be needed to help towards care costs.

The LA must disregard your property from the financial assessment for the first 12 weeks of your permanent care home placement.

Deferred Payment Agreements (DPA)

A DPA is meant to ensure you are not forced to sell your home in your lifetime if you need to pay for residential care. They operate slightly differently depending on whether you are a self-funder managing your own care, or where your care is arranged by the LA.

Key criteria are that the LA assesses you as needing care in a home, and that you have no more than £23,250 of capital excluding the value of your home.

A DPA usually involves the LA taking a legal charge over your property thus deferring costs until after your death. You effectively borrow money towards your care home fees. There may be costs and interest on the accruing amount.

Whether you have sold your house or not, as a self-funder you have capital that we can work with to help support you. We’ve touched on investments and how these might be used as a solution or part-solution to the equation. In 3b I will look at other options, some of which could generate capital reasonably quickly using your property, and one which uses capital to guarantee income.

On that cliffhanger….’to be continued…’

For an initial discussion around either your own or someone else’s long-term care plans or requirements with a Society of Later Life accredited Chartered Financial Planner, please contact us on 0330 320 9280, email  info@cravenstreeetwealth.com or complete our online enquiry form.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

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