Long term care is, for definite, one of the biggest threats to the passing down of capital to our children. Unlike inheritance tax, which is applied as a tax at 40% on transfers over £325,000, your personal estate can be liable for every penny over and above £23,500.
It is also a tax on the poorer estates, as they are the least likely to seek advice. Indeed over 20,000 pensioners were forced to sell their homes to pay for long term care last year, which is just unfair.(1) Amazingly this number has risen by 17% since 2005, which is staggering given the solutions I will mention in a moment.
Over 100,000 elderly people have sold up over the last five years to fund their care. It is only when you are faced with the position (i.e. you are the 'elderly person' or a relative) that you really feel for its impact. I have been in that position recently and I couldn't disconnect myself from the emotion of someone's 45 years of hard work plus twenty years of paying tax in retirement all going to waste as their assets are effectively repossessed. It is simply wrong.
Admittedly, care costs have risen to an average of Â£25,896 but for all the talk of think tanks and plans to create a more fair system, little has changed in the last 13 years for the better.
Many people have been effectively 'duped' into paying for care by changing their wills to plan for inheritance tax, which exposes their estate further. A will writer advised a couple to alter their will after the government changed the Inheritance tax rules, allowing the first nil rate band to flow and be used on second death. The government marketed it as doubling the nil rate band at the time but that was pure twaddle as there has always been two nil rate bands.
And so, the will writer advised the couple to change their will to allow the first deceased's entire nil rate band to be used on second death. Now the survivor has sole ownership for the estate in its entirety and the local authority will be able to include it in any calculations for care costs. Disaster! Had they left it as it was it is likely there would have been no care costs at all. I wonder how many others have been caught by that.
If you have changed your will, go straight to see a suitable solicitor who will have all the requisite qualifications to ensure your estate is properly planned for in terms of long term care.
The above couple had it right before it was changed. They had agreed to hold their house as 'tenants in common'. Tenants in common is simply a variation on how you can legally hold your property but it's effective for long term care planning.
On first death, the deceased's tenancy in common was given into a trust or alternatively they could have passed it onto their beneficiaries. The survivor simply lives in the house until they die. When the local authority would have valued their estate, they would have had to value solely her tenancy in common. The tenancy in common has to be valued at the open market. It is valued at what someone is prepared to buy it for. Of course it doesn’t have a value as what would you pay for one tenancy in common where a completely different party would have the same rights as you to live there.
And so, the survivor's estate soared form zero to Â£382,000, all of which is now assessable by the local authority.
Investments can be held similarly but also there are products that are considered a disregard for long term care such as an investment bond. Be careful of these however and never ever use a plan that pays commission, as they are appallingly expensive and very opaque. There are numerous solutions to this so seek advice from a professional.
For a free fact sheet on Long term care call peter on 0845 230 9876, e-mail firstname.lastname@example.org or take a look at our website www.wwfp.net.
The value of shares and investments can go down as well as up
(1) Daily Mail
Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'