Financial Planning for the elderly
Caring for elderly relatives is a highly stressful time. As it happens to the majority of us at some point in our lives, there are certain decisions you can make today to make life easier for both you and your relatives or parents. This involves a degree of financial planning for the elderly.
Previously we discussed the importance of making sure Wills and Powers of Attorney are in place as well as reviewing current insurance policies and establishing an overall financial position.
That was step 1 and should always be carried out first.
Now we move onto the more practical side of step 2, which is all about paying for the care that your loved ones may need.
In part 3 we will look further at planning options around Inheritance Tax.
Paying For Care
Typically it’s a big decision to move a parent into a care home.
It is very difficult (but not impossible) to obtain funding from the council or NHS for care home fees so normally payment of these fall to the family. With care fees potentially around £50,000 – £70,000 per year it is not cheap.
One route to consider would be looking to obtain funding under the NHS Continuing Healthcare initiative but even those with relatives who have entered the last terminal phase of their lives can still find this process daunting. We have written a blog on the subject which you can find here.
At this point, most families will come to the realisation that they have no alternative but to sell their parent’s property. Only once the family (it’s normally the children who find this the most difficult) have accepted that selling the property is the only way to fund these care fees, is this actually done.
In most situations this creates a pot of cash which is then used to fund the care needs over your loved one’s remaining years. More often than not, the funds obtained are held in cash and are moved over every year to the care home because nobody wants to risk losing anything.
The entire family can only sit back and watch their parents’ wealth (and potential inheritance) disappear over time.
But it doesn’t have to be this way… and for those unable to obtain finding from NHS Continuing Healthcare here are a couple more ideas for you.
Financial planning for the elderly – part 2 of 3
a) Care Home Annuity
A Care Home Annuity is an interesting option for paying care home fees. It involves using a lump sum to purchase an annuity (or obtain a guaranteed monthly income for life) to pay all or some of the care home fees.
All payments received from the annuity are tax-free and can be indexed to increase with the care home fees over time.
The main advantage of this option is that having earmarked a lump sum to accomplish the goal of paying care home fees, once in place, the risk is removed.
There is then nothing more to worry about in terms of paying for care, which allows your relatives or you to make active planning decisions with regard to the balance of the available funds potentially around Inheritance Tax planning (We’ll go through this in our next blog). Given Inheritance Tax is set at 40% on everything above the nil-rate band, planning ahead can potentially save a huge amount of tax.
b) Equity Release
Equity release schemes have gained a somewhat questionable reputation in the past but the industry has cleaned itself up a lot over recent years and is now much more tightly regulated. Also, far larger players are now entering the market and improving the rates on offer. In principle,equity release involves mortgaging the property in return for a cash lump sum.
Interest on the mortgage is then either rolled up (lifetime mortgage) or discounted off the initial lump sum (home reversion).
With property prices having increased strongly over the last 20 years, a huge number of elderly people now have significant equity tied up in their properties. Without selling, equity release is one of the few ways to access that value.
Typically seen as a last resort option to access capital, once the family have accepted that the property may not be passed down to them, this can be a significant method to source capital for your elderly relatives.
Please note, both Care Home Annuities and Equity Release Mortgages require specialist financial advice.
**The above comments are for general information only and must not be treated as personalised financial advice**
If you have an elderly parent or loved one who you are concerned about and have questions on their finances or about taxation, please feel free to get in touch with one of our team members here at THP Chartered Accountants, with offices in Chelmsford, Sutton, Wanstead and Saffron Walden.
Coming next ……. Financial planning around Inheritance Tax – what actions can you take to mitigate it?
About Kevin Wheeler
My career in the financial services industry started over 30 years ago and I joined Sterling & Law in 2014.
I can offer a wealth of experience in both the personal and corporate sectors, in areas such as (workplace) pensions, pension transfers, retirement provision, life insurance, investment and inheritance tax planning.
I am also Sterling & Law’s specialist auto enrolment project manager, designing, planning and implementing auto enrolment solutions for employers since the auto enrolment regulations were introduced in 2012.
I provide a thorough professional service and aim to develop lasting relationships with my clients.
I am married with two teenage children and enjoy playing tennis, table tennis and going on bike rides with the family.