The rise in life expectancy, alongside living with more complex health conditions, has increased the number of individuals requiring long-term care. Many people fail to plan adequately for these costs and this can place a heavy financial burden on family members or result in fewer assets to pass down as an inheritance. Instead of leaving this important aspect to chance, proactive planning is essential. One strategy for addressing this challenge is incorporating care home fees into estate and will planning.
Understanding how to plan for potential care costs can ensure the individuals receiving care do so appropriately, without impacting their family’s financial wellbeing. By thinking ahead, you can ensure that there are suitable provisions in place to meet potential future care needs, while preserving as much of your estate as possible. Let’s explore how you can include these fees in your future planning effectively.
The reality of paying for care homes can often come as an unpleasant surprise for many. Care homes in the UK can be expensive, with fees varying depending on region, level of care required, and type of accommodation. According to recent figures, the average annual cost of a care home with nursing in England is approximately £50,000, while those without nursing care typically cost around £35,000–£40,000. Over time, this can deplete savings and assets that might have otherwise been left to loved ones.
The state offers limited provision in terms of funding, and this is where many people misunderstand how much they might be expected to pay. In England, individuals with assets of more than £23,250 are typically required to pay for their care themselves, with only those with significant health needs receiving financial support from the local authority or NHS Continuing Healthcare. This creates the need for individuals to include these possible future costs when planning their estates and writing their wills.
When considering long-term care costs, it is important to understand that a local authority will conduct a financial assessment to determine how much you can afford to pay towards the care home. This assessment scrutinises both income and assets, including property. For those with more than £23,250 in financial assets, there is limited assistance available, and you may be required to self-fund your care. However, this threshold does vary depending on which part of the UK you are in.
Should you fall below that limit, the local authority might step in to fund some or all of your care costs. However, it’s important to note that the level of care provided might only meet the basic requirements and may not satisfy the personal or luxurious preferences many people might wish to enjoy in their later years.
In cases where a person’s home is not immediately taken into account during the financial assessment—for instance, when a spouse or qualifying dependent continues to live there—the property might eventually need to be sold to pay for care if no other provisions have been made. This underscores the need to carefully consider how your assets might be used to cover long-term care expenses.
To navigate this complex system and protect family wealth, there are several steps individuals can take to plan their estates and wills in a way that accounts for future care home costs. It is essential to tailor any plans to individual circumstances, as different strategies will suit different people depending on their financial situation, health, and family dynamics.
One strategy that seems simple in theory is to give away some of your assets to family members or loved ones while you are still alive. Doing this sooner rather than later can help reduce the size of your estate and may ensure that your financial resources are protected from a care fee assessment. However, there are legal guidelines that local authorities employ to prevent people from deliberately decreasing their assets—known as “deliberate deprivation.”
If a local authority deems that gifting of assets has been carried out with the sole intention of avoiding care costs, they could include the value of the gifted assets in your financial assessment. This can happen even if you no longer own the assets. It’s important to seek legal and financial advice when considering gifting as a strategy to avoid being caught by these rules.
Another popular method for protecting assets is placing them into a trust. A trust is a legal framework that allows you to transfer ownership of certain assets, such as property or money, to trusted individuals or entities (trustees), who hold and manage these on behalf of your beneficiaries. By doing this, individuals may be able to effectively reduce the size of their estate for care cost assessments, while retaining some control over how those assets are used.
However, careful planning is necessary to avoid accusations of deliberate deprivation. For example, setting up a trust specifically before entering care might raise red flags with the local authority, while long-term trust planning done genuinely to protect inheritance or other interests may evade such scrutiny. Trusts are complex legal instruments that require specialist advice to set up properly.
For those who own property and wish to access part of its value without having to sell, equity release schemes might be a viable option. These financial products allow older homeowners to borrow money against the value of their home, which can then be used to pay for care. When selling your home is not ideal—perhaps because a spouse is still living there—equity release can help to free up funds while maintaining some control over the property.
Keep in mind that equity release might reduce the value of the inheritance left to beneficiaries, as the debt secured on the property will typically be repaid upon death or the sale of the property. It’s worth exploring both the advantages and disadvantages of this option with a financial adviser.
For those who wish to keep their home and are eligible for care help, a deferred payment arrangement (DPA) may be available from the local authority. Under a DPA, the local authority covers the cost of care and the individual repays these costs at a later date, typically after the property is sold. This allows you to retain control of the property for now, possibly preserving inheritance interests.
Not all individuals are eligible for deferred payments, and these arrangements typically generate interest, which can accumulate over time. It remains an option worth considering for those who wish to avoid the immediate sale of their home while still securing care.
Planning ahead by securing long-term care insurance is another method for ensuring future care costs are managed without liquidating family assets. These insurance policies allow individuals to pay for future care in return for an insurance payout when care is required. This can help cover some or all of the costs associated with residential or nursing care.
However, long-term care insurance requires early planning, as premiums are often expensive, and coverage usually needs to start well before care is needed. It might also only cover a portion of the costs depending on the policy chosen. Again, it is recommended to review the details with an insurance expert to understand whether this option is right for you.
While it’s important to ensure care costs are managed, balancing out the tax implications is also critical. One of the most significant taxes related to estate planning is inheritance tax (IHT). Currently, the inheritance tax threshold in the UK is £325,000, meaning that any assets above this figure are subject to a 40% tax.
If your care fees reduce your overall estate below this threshold, inheritors might avoid IHT altogether. However, if there is still considerable wealth remaining, IHT planning should form part of your will considerations. It is advisable to speak to a tax expert to explore how you can optimise your estate in such a way that minimises both care fees and IHT burden.
The possibility of having to sell the family home to pay for care costs is one of the driving fears for many people as they age. Whether or not your home can be retained often depends on various factors, including who else lives there, whether you require residential or nursing care, and your overall financial picture. If you have a spouse, civil partner, or qualifying dependent (such as a disabled adult child) living in the home, the local authority typically does not count the property towards the care cost calculations while that person is still living there.
Additionally, creating a will that reflects your wishes can establish explicit instructions about the future of your home—ensuring, for example, that certain family members can retain the home rather than selling it to pay for care.
Understanding these nuances and structuring your will can help you retain as much value in the family home as possible. Even if some equity needs to be released, or direct sales might need to occur in the future, early planning can mitigate the overall financial impact.
When dealing with the complexities of planning for care home fees through your will, professional advice is essential. You may require the assistance of legal experts such as wills and estate lawyers, tax specialists, and financial planners to understand the full spectrum of options available.
By ensuring you have done the appropriate planning, you not only secure the care you will require as you age but also safeguard the financial future of your loved ones. Time spent now on addressing potential care costs will ease the burden on your family members or beneficiaries in the future.
Including care home fees in estate planning requires forethought and an understanding of how care fees might impact the value of your estate. By examining options such as trusts, gifting assets early, equity release, insurance, and tax planning, individuals can structure their plans to ensure they secure suitable care without compromising the future of their family. With the right strategies in place, it is possible to fund the comfort and well-being you need later in life while leaving behind a robust and tax-efficient legacy for your loved ones.
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