Estate planning |
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Don't let care costs swallow up the family home
A reader writes: My mother-in-law is a 76-year-old widow, who suffers from emphysema. She receives a pension, a widow's pension and an attendance allowance, has savings of £35,000 in a building society account, and a house worthHowever, if she had to go into a nursing home, she would have to pay for her own care and sell her home. We could afford to buy her house now, with my brother-in-law's and mother-in-law's agreement, and she could live there as long as she needed to. What can we do to help her reduce the risk of losing the family home? How can she dispose of the money acquired through the sale of her home without being held accountable for disposing of an asset to avoid paying for care? David Marlow replies: Given your mother-in-law's healthy financial position, age and impaired health, you are wise to plan ahead for the possibility of having to pay ongoing care fees. In most cases, anyone with assets above the means-test limit (£21,000 for 2006/07) will have to pay for their own nursing care in England.The means test covers all assets, including property, but a primary residence can be disregarded for a period of three months. Your mother-in-law seems likely to be above the limit, so she will be responsible for meeting her own care costs. But this doesn't mean she will have to sell her home, particularly if her net income is already enough to meet those costs. As for another of your concerns, tax provisions do exist for gifts that primarily relate to inheritance tax. There are also practices relating to the means test for long-term care that allow local authorities to assess whether gifts were made to avoid paying care costs. This means that - for the purposes of the means test - any gifts made could be treated as though still part of your mother-in-law's estate, including the proceeds from the sale of her home. Although the property value is likely to remain included in the means test whatever you do, it may still make sense for you to buy it. The release of funds could provide greater security for your mother-in-law and allow you to make provisions for her to live there indefinitely. If and when care is needed, a care fee annuity, where capital is forfeited in exchange for regular income, can be considered. This can provide tax-efficient income for as long as care is required. An investment bond can also provide ongoing access to capital with the potential to provide income. However, there is a risk of drawing too much and depleting the investment, which could then impact on the ability to meet ongoing care costs. Your mother-in-law should also consider setting up an enduring power of attorney, if she has not done so already. This essentially allows for trusted individuals (such as yourself) to manage her financial affairs. For more general information, try the Citizen's Advice Bureau or Age Concern.
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