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Tips for dealing with long-term care costs

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Long-term care is a depressing subject and one that few want to contemplate. This extent of the unwillingness to address the problem was revealed this week in a survey by specialist insurer Partnership.

The survey showed 96 per cent of over-65s have made no financial plans to pay for care.

This is perhaps understandable given that no-one knows whether they will need care, but perhaps more worrying was the 73 per cent of people that have not spoken to their families or even thought about the subject.

The impact of care costs on a family’s long-term wealth can be disastrous. Care costs can quickly erode assets built up over a lifetime, such as the family home. At the moment, only those with assets below £23,250 receive any help from the Government.

Two years on from the Dilnot Commission’s report into long-term care costs in the UK, the Government finally outlined its plans for long-term care funding in April of this year.

The government’s proposals in April suggested a cap on care costs of £75,000 from April 2017. There would be a separate, annual, ceiling for ‘hotel’ costs such as food and accommodation. The state will pay if these exceed £12,000 per year. The new measures also raised the threshold at which people can receive government help to £123,000 from 2017.

The measures are certainly welcome and will ensure that care costs do not erode all of an individual’s wealth that would otherwise have been passed to the next generation, but it still leaves a significant pot for family members to find. The cost of care is increasing substantially ahead of inflation. Estimates vary, but the average cost of full-time residential care can now be over £30,000 in London and the South East.

Putting a relative into care is never an easy decision, but these steps should minimise the financial impact.

Use all of the available allowances

There are a range of allowances available to individuals to support them in care, including an attendance allowance, personal expense allowance and registered nursing care contribution. Check whether a relative may be entitled to any of these allowances.

Maximise an individual’s assets 

Individuals may have state and employment pensions, income from investments and other savings. It may be that investments can be redeployed to generate a higher level of income. It may also be possible to let out all or part of the family home to prevent it being sold.

Specific products

Immediate care plans (also known as immediate needs annuities) operate like conventional annuities – a one-off lump sum buys an income stream for life. The difference is that these plans are specifically for long-term care and are tax free if paid directly to a care provider. They may also have flexibility if an individual moves out of care for any reason. It may also be possible to use schemes such as equity release to use the capital in the family home.

Challenge care cost rises 

Groups such as Valuing Care have a track record of negotiating better rates on behalf of its clients. Also, there have been reports of individuals successfully challenging rising care costs based on individual needs.

A final word would be to ensure that there is a power of attorney. If people have reached the point of needing long-term care, they are often not in a position to manage their own finances successfully. A Power of Attorney allows someone to make decisions on an individual’s behalf and should be in place well before it is likely to be needed.

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