What does the word ‘trust’ mean to you?
- Is it the ability to rely 100% on the actions of another person?
- Maybe it’s an organisation designed to protect something or someone?
- Or it could even be the legal holding of assets on someone else’s behalf?
As nursing home fees reach an average of more than £1,000 per week, it is important to be very careful about the first and last of these.
If you need care in later life, due to poor physical or mental health, you may find that you are faced with fees so high, that you are forced to sell your home to pay them.
For many people they can’t expect to receive help from their local authority; if the total value of your savings, assets and property is more than £23,250 (£30,000 in Wales), you will not be eligible for any help with the cost of care.
At the same time, the amount paid in Inheritance Tax (IHT) continues to rise, cutting the amount many people can leave as a legacy when they die.
The perfect storm of high care fees, rising IHT receipts and a lack of financial support from local authorities has presented scammers with an opportunity to pray on vulnerable people and their families.
How do the scams work?
By recommending ways to lower the value of your assets or estate to a level where you will qualify for local authority assistance or cut the IHT bill on death.
Often these arrangements necessitate putting your home into a trust arrangement. The theory being that once the property is held by a trustee it is no longer owned by you or counted as a part of your estate.
What’s the issue?
You could be forgiven for thinking that this all sounds great and is the perfect solution to having to sell your home to pay for care.
Remember the golden rule in finance: ‘If it sounds to good to be true, it is.’
Quite simply, you cannot have it both ways.
Transferring, selling, gifting or otherwise reducing the value of your assets simply to receive assistance with the cost of care is known as ‘deliberate deprivation’. As cash strapped local authorities look to target resources at the neediest, it’s likely they will look at financial transactions and disregard anything they believe to be an attempt to artificially reduce the value of your assets.
Furthermore, there’s no limit in how far back the local authority can look. Many people believe they can’t consider transactions older than seven years. However, that isn’t the case.
Of course, the pain of finding that you still have to pay for the cost of care will be increased by the fact you’ve paid for a service which hasn’t worked and have, probably, lost control of the asset as it is now in a trust arrangement.
For those trying to maximise the amount left to their loved ones, and reduce the IHT paid on their death, making complex changes to property ownership is often the final resort, with many more attractive, and far simpler options available.
So, how can you afford care in later life, without giving up your home?
The short answer is financial planning.
The slightly longer answer is that the potential cost of care should be factored into your retirement and pension planning throughout life.
When the time comes to retire it’s only natural that your thoughts will focus mainly on being able to meet the costs of your lifestyle. However, our job as financial planners is to look past your immediate needs to the longer term, ensuring that your income remains sufficient for your needs in a variety of circumstances.
One such example is of course the cost of care in years to come.
Our carefully constructed financial forecasts will model different scenarios; you, your partner or both of you needing care:
- Could the cost of care be met from income?
- Will you have to sell assets or use your savings and investments to meet the cost of care?
- How many years could you afford to pay for care?
- How will the cost reduce the amount you leave behind when you die?
If you have already retired, considering these scenarios becomes ever more important as you become older and the likelihood of needing care increases.
Look past the headlines and invest in proper financial planning
The headlines, promising to preserve the value of your estate for younger generations, while helping you access financial support from your local authority might be tempting.
However, if it sounds too good to be true it is, which means these schemes should be avoided.
There’s no substitute for careful financial planning to help you achieve your objectives, working within the rules and frankly, not being too clever for its own good.
If you are worried about how you would pay for the cost of care in old age, please feel free to get in touch by calling us on 01664 77 88 99 we would be very happy to help.
