Q: What are the Conservative's new proposals for long term care funding?

I suppose like any run up to an election, noise is catapulted beyond comprehension. We all have short memories and in practise will the proposals ever apply? Probably not. But I suppose we all want to believe the best will happen and we can rely on a government and that is why proposals are being slung around like a politician coming up to an election!

The age old problem of care is a subject that any government will want to get right as it affects every level. A family have worked for years and built up a range of assets that they want to pass onto their children, only to find that it's frittered away in costs. The family are caught between the rock and hard stone as they want the best care for their parents but want to keep the family home.

Andrew Lansley laid down proposals where a Conservative government would allow people to make a one-off, upfront, voluntary payment of around £8,000 at age 65. This would cover all future residential care costs and would avoid the issue of people having to sell their houses to meet fees.

It would purely be an insurance based scheme run by an insurance company but backed by the state. Currently 45,000 people per year are forced to sell their houses to pay for costs, but this does not even touch the figure for people who are actually funding out of income or who are running up the debt against a property. (1)

Q: Will anyone use it?

Insurance schemes have been in place for some time, so it's peculiar to think why this will be any more popular. The take-up of insurance based schemes has been so low that most insurance companies have pulled out of the market completely.

There must also be doubts over the cost of funding. There are various reports on the costs of care depending on who you speak to, but if the average is £26,000 per year and the average time in care is three and a half years, that is a total of £91,000. At a cost of £8,000 for an insurance premium, any insurance provider would be looking at only one in twelve ever claiming; otherwise the scheme would soon be bankrupt.

Q: What can I do to protect my house?

If you have savings, insurance bonds are classed as a policy of insurance and are a disregard so are excluded from your assets when assessing care fees. Look at how you can manage your estate to ensure all the correct savings and investments are held as wisely as possible.

If you own your property outright, consider what the best way is to own it. Is it as a joint tenant or as a tenant in common?

If you own it as tenants in common, your half of the tenancy is calculated by the local authority when assessing your ability to pay. Consider that your tenancy in your house is valued as if it was on the open market. What value would you pay for a tenancy in a house where the other tenancy is owned by someone else? Its valueless and local authorities have to value it as such thereby protecting your hard earned assets. Your solicitor will advise you on this.

Many people have fallen into a trap with the recent changes in Inheritance tax and may well allow for all their spouse's assets to fall to their ownership on first death. This could be a disaster.

If on first death you separate the ownership so that your spouses tenancy moves into a discretionary trust for example, your tenancy will become valueless in the eyes of the local authority whilst you are still able to continue to live in the property.

There are many methods of simply realigning ownership of your assets without deliberately deprivating your capital and homeowners and families alike should seek advice from their professionals in this matter

If you have a query on long term or for inheritance tax advice care call Matt on 01872 222422, e-mail info@wwfp.net

Source:

(1) www.ft.com

Think carefully before securing other debts against your home

Matt Higham is an Independent Financial Adviser with Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority.  'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.

The above represents the personal opinions of Matt Higham.

All information is based on our understanding of current tax practices, which are subject to change.
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