Later life care costs: hope for the best, plan for the worst

First published in The Press and Journal.

We all imagine our old age differently. Some people look forward to slowing down, others have a long and adventurous bucket list, and many hope to continue working in some capacity. While it’s important to focus on the positives, ageing undeniably also has some negative aspects. Some of those can be addressed relatively easy – with the help of a skilful and discreet hairdresser, perhaps – but others present a more difficult set of options, and require careful planning.

Perhaps the most challenging of all is long-term residential care: few people relish the prospect of having to leave their home because they can no longer live independently. And however you feel about it, the costs are daunting for all but the wealthiest. For example, Bupa’s fees for care homes range from £925 to £2,828 per week. The state aid system defies simple explanation, but at the time of writing most people with assets over £35,500 have to meet all of the costs themselves.

No wonder, then, that many people who hope to pass their home on to their children worry that they’ll have to sell it instead. But there are some things you can do about this in advance. Here is one example.

Including a liferent trust in your will

You can’t simply transfer ownership of your home, or any other asset for that matter, from yourself to another person or a trust and be confident that that is enough to protect its value from being assessed for care fees. Timing is key, but if you do this your local authority may try to recover the asset. What you can do, however, is include a liferent trust within your will. For the following example, let’s assume that you’re in a couple, living together, and each own a half share of the house.

If your will includes a liferent trust, when you die your surviving partner retains the right to live in the house, but they do not fully own it. They keep their half-share, but someone else is the ultimate beneficiary of the other half. If your surviving partner then needs care, the local authority will undertake a financial assessment that will only include the market value of their own share of the home. Usually, a half-share of a house has little market value, which might bring their total assets down to a level which entitles them to assistance with care home costs.

Similarly, if a couple has children and only one person owns the whole house, rather than bequeathing the house to their surviving spouse or partner absolutely, they could leave them a liferent interest (to protect their occupancy of the house) but the house is ultimately left to the children in their will. This enables the surviving partner to keep living in the house without owning it.

It is very common in a family situation for the parents to leave their whole estates to each other on the first death and then for their combined estate to pass down to the children following the second death. However, this isn’t always the best option. If one of the parents has had to move into residential care, or it looks likely that they will in the future, it is advisable for the other one to exclude their partner as a beneficiary of their will and pass their assets directly to the next generation, or other choice of beneficiaries. This can be an emotionally difficult decision, but if assets are inherited by someone in care, or who later moves into care, they may end up being spent on care fees.

These are all variations of the same basic idea, but they have different tax implications and different rules about what people must and must not do. Whatever arrangements you decide to put in place, it’s vital to ensure that your plans are right for you, and that you fully understand all the consequences and limitations. That will probably require high-quality professional advice. The lawyers in our Private Wealth team are well-versed in all the complexities, and if you wish to discuss your own particular circumstances we will be happy to help.

Clear communication with everyone involved is also essential. Most people find it difficult to discuss these subjects, but the best way to avoid damaging disputes later is to ensure that everyone has had an opportunity to share their views and contribute to decisions at an early stage.

However you imagine your golden years playing out, spending your last penny on care fees doesn’t have to be part of the deal.

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