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Brenda, an 83-year-old widow who had lost her husband some five years ago, had suffered a stroke, been discharged from hospital and moved into a local nursing home, which her son had helped to choose.
Brenda’s financial resources were sufficient to make her ineligible for local authority help to fund the cost of her care, which was around £30,000 per year. She was proud of her financial independence and didn’t wish to live off state handouts or have the quality of her care dictated to her. However, she was concerned that her life savings would be eroded and that she might have to spend all of it on care.
Her attorney (a partner in a local firm of solicitors) approached Paradigm Norton for advice on how best to support her care fee funding and placed particular emphasis on Brenda’s wish to retain the family home of more than 30 years, as it had always been earmarked for her only son.
Dealing with later life issues, such as funding for care, has become increasingly commonplace and, having worked alongside solicitors for many years, we’ve experienced an increasing demand for our professional advice and guidance when they are acting in the role of attorney or deputy to ensure that they are able to make sound choices when it comes to the financial implications of care funding for their clients.
Working with Brenda’s attorney, we began to assess her financial position. We ascertained that she would not be eligible for continuing healthcare payments and she would therefore need to fund most of her care costs, which would be in the region of £2,500 per month. Her ongoing legal costs were expected to be a further £2,500 per annum.
We asked her attorney to complete a long-term care questionnaire, which is similar to a client fact find, and identified that Brenda had cash savings of £60,000, her home was worth £350,000 and she had a discretionary managed portfolio through her stockbroker worth £350,000, plus other ad-hoc investments worth £50,000. Her regular secure income amounted to around £20,000, meaning that there was an immediate identifiable shortfall of around £12,500 per annum.
While the priority was to ensure that the care fees were fully funded, we also took into consideration Brenda’s wish for the family home to not, if possible, be sold
We prepared for her attorney a care fee funding report to highlight the various ways of funding for care and included, using agreed assumptions on cash and investment returns, care fee inflation, and other factors, the long-term impact should funding be from: cash; cash and investment; cash and specialist annuity and a combination of all three. While the priority was to ensure that the care fees were fully funded, we also took into consideration Brenda’s wish for the family home to not, if possible, be sold.
To aid assessing any investment option, the attorney also completed a risk profile questionnaire. From this, we established that a moderate approach to risk was deemed appropriate.
Once our analysis was completed and the report issued to the attorney, we had a meeting to discuss the options outlined and their potential impact on Brenda’s short, medium and long-term cashflow. We highlighted that the investment portfolio was heavily invested in equities and predominately UK-orientated (and therefore not in keeping with our view on what constituted a moderate portfolio) and that the total charges being applied were high.
The outcome of these discussions led to specific recommendations being made, which included:
- Retaining a high level of cash (£40,000) for personal expenditure and emergencies.
- An Immediate Care Plan (ICP – an annuity that pays for long-term care) purchased for £100,000 to fund the shortfall in care fees, with payment directly to the nursing home (which meant that the annuity was tax-free).
- The investment portfolio was moved to a more diversified and lower cost arrangement with the principle objective of providing inflation protection.
- The family home was retained and looked after and occupied by her eldest granddaughter.
The ICP provided a tax-free income of £12,500 per annum, payable monthly, directly to the care home. A short guaranteed period was includedand inflation protection of 5% per annum purchased. We used a common application form which enabled us to apply to several specialist ICP providers at once, and, following underwriting and terms being issued, we could then assess the best rates in the marketplace for Brenda’s specific requirements. While mitigating a potential charge to inheritance tax (IHT) was not a priority, the annuity purchase meant that £100,000 was immediately taken out of her estate for IHT purposes.
For Brenda and her attorney, the result of our planning being centred on her needs, fears and financial requirements means that she has complete peace of mind that her care costs will be covered throughout her lifetime; her capital should last longer than her; and the family home doesn’t need to be sold.
We were able to ensure that her assets were optimised to provide access to capital throughout her lifetime within a tax efficient, low-cost portfolio, thereby minimising charges and potential tax liabilities and that her family, rather than the state, would be the primary beneficiaries of her estate.
What happened next
As with any planning, it needs to be revisited each year to ensure that it remains fit for purpose. As such, an annual review and planning meeting is held with the attorney to ensure that Brenda’s financial needs and ongoing wishes are met.
The attorney knows that the comprehensive approach of both our initial work and continuing advice ensures that they are meeting their legal obligations and this provides peace of mind for them also.
This article was first published in the Q2 2018 print edition of The Review. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'.