Caring for elderly relatives is a highly stressful time. As it happens to virtually all 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.
Previously we discussed the importance of making sure wills and powers of attorney are in place as well as reviewing current policies and establishing an overall financial position. That was step 1. That should always be done first. Now we move onto the more practical side of step 2 which is paying for care that your loved ones may need. Next week in step 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 highly unlikely that the council will fund care home fees so normally they come down to the family. With fees potentially around £50,000 – £70,000 per year it is not cheap. At this point, most families look around and realise they have to sell their parent’s property. Once the family (as in all the family – it’s normally the children who find this the most difficult) have accepted the fact that the property is the only way to fund these fees, this is done. So in most situations this creates a pot of cash which is then used to pay for care over your loved ones remaining years. The funds are normally held in cash because nobody wants to risk anything and are moved over every year to the care home, as the entire family watch their parents wealth (and potential inheritance) disappear over time.
But it doesn’t have to be this way… so here are a couple of ideas for you.
a) Care home annuity
This is an interesting option used for paying care home fees. It involves using a lump sum to purchase an annuity (or guaranteed income) to pay all or some of the care home fees.
The payments are tax-free and can be indexed to increase with the care home fees over time.
The main advantage of this option is that you can earmark a lump sum to accomplish the goal of paying care home fees, then once this is in place, it’s done. There is nothing more to worry about in terms of paying for care which allows your relatives or you to make active planning decisions with the balance of the funds potentially around inheritance tax planning (I’ll go through these options shortly). Given inheritance tax is 40% above the nil-rate band, this potentially can save a huge amount of tax.
b) Equity Release
Equity Release previously has had a somewhat questionable reputation however the industry has cleaned itself up a lot over the recent years with both better regulation and far larger players getting involved improving the rates for the end customer.
In principle it involves handing the value of the property over to the mortgage provider for either lump sums of cash where the interest is either rolled up (lifetime mortgage) or discounted off the initial lump sum (home reversion).
With property prices being relatively strong over the last 20 years, there are a number of elderly people with significant value tied up in their properties. Without selling, this is one of the few ways to access that value.
Typically seen as a last resort option to access capital, however once the family have again accepted that the property may not be passed down, it can be a significant source of capital for your elderly relatives.
Please note, both Care Home Annuities and Equity Release Mortgages required specialist financial advice.
Next week we will discuss financial planning around inheritance tax and what actions can be taken to mitigate it.
If you have an elderly parent or loved one that you’re concerned about and have questions on their finances or taxation, please feel free to get in touch.
## The above is for information only and not personalised financial advice##