Who’s Going to Pay for Social Care?

In this current turbulent political landscape, certain issues are being overshadowed.  Something under the radar has recently been highlighted by the Centre for Policy Studies.  The Rt Hon Damian Green has put proposals forward to address the issues of the ongoing social care crisis.  As a politically toxic topic, with various possible remedies branded as dementia or death tax, there seems an impasse on how best to address it.  Given the resulting uncertainty, what can anyone do to minimise the potential impact of the current care crisis lottery?

A risk of individuals losing their home

The fact remains that there is a very real risk of individuals losing their home and life savings to care costs.  The average annual cost of nursing home care is estimated to be £44,000 annually and support to pay these fees is means tested.

Anyone with savings of over £23,250 often has to pay for their case costs in full without support. Figures estimate that around £7bn of personal funds are used to pay for social care each year and for people going into a residential or nursing home it can mean having to sell their home if their partner is no longer living in it.

Many individuals want to be able to pass on their assets to their wider families but can still require the use of them during their lifetime.  This could potentially be achieved by making a gift to wider family members or a discretionary trust established for the benefit of the family. Alternatives to making gifts could be an investment in financial plans known as immediate care plans. These generally provide a tax-free annuity income if it is paid to a care provider.

Trusts as a solution?

Trusts are generally used in family situations where individual wishes to give assets away for the wider and long-term benefit of the family but still wishes to retain control of them during their lifetime.  They, therefore, provide some comfort that a rented property will not be sold without their permission.

Thought should be given to the wider consequences of making a trust, as part of a wider review of their personal affairs.  For example, what are the IHT implications of making such gifts and will the individual have sufficient funds to support themselves throughout their retirement?  In general, a gift of the main residence is unlikely to have any significant advantage from an IHT perspective while the individual continues to live in it unless a full and fair “arm’s length” market value rent is paid. Even then there are income tax and capital gains tax implications on the beneficiaries of the gift, so experienced advice is essential.

Even if a property is gifted or put into Trust, it is crucial to be aware that local authorities may challenge the validity of this as ‘deliberate derivation’ of assets.   The two key areas that will be looked at are firstly did the individual know that they may need care and secondly, is avoiding care costs the significant reason for making the gift?  The timing and importantly the intention of any gift is hence decisive, and if the individual making these financial plans is not fit and healthy at the time, the assets could well be counted in any means-tested calculation.

There are some maverick marketed trust schemes available in which the primary motive is the blatant avoidance of social care costs.  Early advice as part of a wider succession planning exercise is important if gifts are to fall outside the lottery of paying for care.

For the peace of mind that efficient planning brings contact us now and we will arrange a free 30 minute telephone consultation for you.  Our experienced, professional and impartial financial planning advice can help with your family succession planning.