The subject of paying for care in old age is never far from the headlines. As with most financial matters, some opinions are treated as fact and many are less than accurate. We’ve pulled together the top six myths about long term care and tried to explain the reality.
Myth #1: “I’ll pay nothing for my care after the first £72,000.”
Following the Dilnot Commission’s recommendations, the Government has proposed a ‘care cap’ of £72,000. However, this has led some people to mistakenly believe once they have paid £72,000 towards the cost of their care, they will have nothing left to pay, leaving their remaining assets free to pass to their loved ones after their death.
It would be great if this were the case, unfortunately the reality is significantly different.
The £72,000 cap only applies to the cost of care and then only at a rate prescribed by the Local Authority, which may be significantly lower than the actual cost. Furthermore the cap won’t apply to the cost of your accommodation in a care home; you will still have to pay for this yourself if your assets are above a certain level.
The cap will help some, but if you think it means what you pay will be capped at £72,000, you could be in for a very expensive wake up call.
Myth #2: “My parents own their home and have savings of £30,000, my father needs care and my mother will be forced to sell her house.”
Having to sell their house is one of the main fears of people facing the prospect of paying for their care.
Whilst there are circumstances when a house has to be sold, when a spouse or other financial dependent will continue to live in the house, the value will be disregarded from the means test for funding.
Therefore, if you still live at home and your husband or wife needs care, you can rest assured that your house will not have to be sold.
Myth #3: “I gave my house to my children 10 years ago; the Local Authority can’t force me to sell it to pay for my care.”
Many people believe that giving their property away, whilst continuing to live in it, is an effective way of excluding it from the means test.
We’ve also seen people confuse the care funding rules with those which relate to Inheritance Tax (IHT) and mistakenly believe that if you give an asset away and survive for seven years it will escape the clutches of the Local Authority.
The reality is very different.
There is no limit on the amount of time your Local Authority can go back to assess whether you have deliberately deprived yourself of an asset, perhaps by gifting your home to your children but continuing to live there. It’s also true to say that as Local Authority budgets get squeezed many are becoming more aggressive when it comes to deciding whether an asset is included in the means test.
Myth #4: “We can get around the means test and having to sell our home, by putting it in a trust.”
Using trusts is a complex issue; your Local Authority, as well as HM Revenue & Customs, will be keen to try and prevent people avoiding paying for care fees and Inheritance Tax (IHT).
Legal advice is crucial, but even the best advice cannot always cope with future rule changes, which could mean action you take now is ineffective in years to come.
Under the means test, your local authority may ask about your property ownership going back a number of years. If it deems property was placed in trust deliberately to take it out of the means test, the value may still be included. Plus, the means test upper threshold is low (currently £23,250) so other assets could disqualify you from support in any case.
Putting property in trust for future generations is a complex issue, not simply because of care costs, but because the Inland Revenue is keen to prevent people trying to avoid inheritance tax, so professional advice is essential to make sure you get it right.
Myth #5: “I’ve got assets above £23,250, so I’ll get no help.”
Whilst you will currently get no help towards the cost of your care, although this could change when the care cap is introduced and the upper limit rises to £118,000, there are still State Benefits which you might be able to claim.
If you need help with basic tasks such as bathing or dressing you may be able to claim Attendance Allowance, which is paid at a rate of £53 or £79.15 per week, depending on the level of care needed.
If nursing is required, the Registered Nursing Care Contribution may be available from the NHS.
Finally, Disability Living Allowance may also be available.
Just because someone has assets above the upper limit, it may still be possible for them to claim some assistance from the state.
Myth 6: “If I die soon after buying a Care Fees Plan I’ll lose all the money I paid for it.”
This isn’t necessarily the case.
Some Care Fees Plans will return some of the capital if the person who has bought it dies within the first six months; others will allow you to include Capital Protection, which returns a lump sum if the amount invested is greater than the amount paid out.
This ‘myth’ demonstrates the need for advice when considering how you or a loved one will pay for their care; the wrong decision, or choosing a plan without all the facts, could prove to be a costly mistake.
Myth 7: “If I run out of money the Local Authority will have to pay my current care fees for me.”
Even with the proposed changes, many people will still have to pay for their own care, but over time, particularly if the stay is prolonged, assets could reduce to a point where there are no longer the funds to meet the cost of care fees.
If this is the case, the Local Authority will have to step in and meet the cost of your care. However, they are under no compulsion to pay your current fees and could move you to a cheaper care home.
Moving home at any age is stressful, but particularly for older people, perhaps suffering from ill-health and should be avoided at all costs by careful planning to ensure, as far as possible, that there are always sufficient funds to pay care costs.
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The Financial Conduct Authority does not regulate tax advice.