Radio 4's Money Box programme looked at the unregulated 'avoidance industry' last week, investigating companies that offer a solution to the care fee trap by putting your money into a trust.
This blog condenses the programme's key points and shares 7 things you need to know about planning for care home fees...
1. If you go into care, your local authority will carry out a means test to calculate how much of your care home costs you can afford to pay.
Residential care homes often cost in excess of £29,276 a year. When somebody goes into care, the cost of that care needs to be met. Adult social care is a means-tested benefit and 53% of those requiring care will need to part or fully fund it themselves.
In order to find out who pays for what, the local council carries out a means test. The means test is fiendishly complicated. The Money Advice Service provides a good explanation of how councils work out who pays what and how the means test works.
2. Currently, in England, anyone with more than £14,250 is expected to pay something towards care home costs. Those with assets in excess of £23,250 get no help .
Once savings fall below these benchmarks, local authorities becomes responsible for care home fees. Beware though — it's not quite as simple as it seems. People still have to contribute their pension (minus a small personal allowance) towards their care-home's bed rate.
Want to know how much care home fees will really cost? Check out Paying for Care's (a not for profit company set up to help people understand care home fees) Care Calculator.
3. Your home is not always included in means testing and even when it is, you cannot be forced to sell.
It is widely believed that the value of your home is always considered in means testing. Not so. A property is disregarded if a spouse or a disabled person continues to live in that property.
It is also widely believed that if you have less than the £23,250 threshold in savings, but you have a property worth more than this, that you will be forced to sell to cover your care home costs. No so. You can go to your local authority and ask for a '12 week disregard', which means that the local authority will fund your care for 12 weeks. After 12 weeks, you need to decide what to do with your home. You can choose to sell it, rent it, or ask for a deferred payment scheme.
A deferred payment scheme is like a loan. Your local authority will take out a legal transaction and put a charge on your property similar to a mortgage. They will pay your care fees until the house is sold or the person dies. You are charged a modest interest rate linked to the Government's borrowing rate (currently 2%.)
4. Giving away assets to avoid paying for care home costs is known as 'deliberate deprivation'.
As reported in Moneybox, harsh means-testing, escalating costs of care, post-code lotteries and the human instinct to protect what you've worked hard for has, perhaps understandably, led to many care home cost avoidance schemes and the evolution of an 'avoidance industry'.
As such local council means testers have developed sophisticated ways to identify whether people have committed deliberate deprivation. If they identify acts of deliberate deprivation in your estate (e.g. if they can prove that you have been motivated to move money into a trust by an intention to avoid paying care home fees), your money will still be means tested — trust or no trust.
5. Don't buy financial products from companies whose marketing material claims to be able to help you avoid the cost of care home fees.
Aware of such avoidance tactics, means testers automatically check the marketing literature of any organisation from which you have bought trusts and other financial products.
If any (like Universal Wealth Trust, the organisation exposed in the Money Box programme) claim to be able to help avoid the cost of care, your case will immediately be identified as deliberate deprivation and your assets will be means tested.
6. Better still — only buy financial products from companies that are registered with regulatory bodies.
As part of the 2014 Care Act, the Government had hinted at enforcing regulation of Will-writing to help stamp out such avoidance schemes, but, as yet, has failed to do so. Even so, one way to ensure that your estate has been planned within the rules of means testing, is to only buy financial products from organisations that are registered with governing and regulatory bodies such as the Society of Will Writers, the Council for Licensed Conveyancers (CLC), the Solicitors Regulation Authority (SRA) and the Financial Services Authority (FSA).
Local government means testers trust organisations registered with such bodies.
7. Never, ever underestimate inflation when calculating care home costs.
In another recent episode, Money Box shared the story of a family who had been forced to absorb two care home fee increases in two years (the first at 8.5% the second at 10%).
Whilst these examples were considered higher than average, the programme reported that the costs to providers over the last five years have increased by 5-6% annually, due to rises in the national living wage, recruitment costs, auditing costs, engagement with healthcare professionals and the Care Quality Commission costs. With local councils having locked in the fees they pay, thanks to the power of bulk buying, many homes are passing on these costs to self-funders.
One way to know you can afford such increases is to take out a care annuity policy (an insurance policy where, typically, you buy two years' care and the annual price is locked at that rate, no matter how long the person remains in the care home). Another way is to negotiate a fee cap at the start of any contract with a care home.