Care Home Costs in the 21st Century

Many of our clients are very concerned about the prospect of going into care and having their assets used to meet care costs with the result that their family may receive a greatly depleted inheritance. Barbara Watson discusses this difficult issue and what you can do to protect your assets.

The political angle: how should this issue be dealt with?

The fact is that more people are living longer and unfortunately many need care in their latter years. This care is extremely costly and likely to get more so in the future. As a society, we have to decide how it is to be paid for. Either it is funded by the State – in which case we all pay for it – or it is funded by those who need it if they have the resources.

The legal angle: what is the law?

In Scotland, if you have assets you will have to pay for your care. Your income will be used with the exception of £24.55 per week which is intended to cover personal spending on toiletries, clothes, presents etc. If you have capital in excess of £26,000 you will be expected to pay the full cost of your care. Once your assets fall below £26,000 the Council will start to contribute to care costs until your assets fall to £16,000 at which point you will be fully funded and will not be expected to contribute any more capital.

The official Charging for Residential Accommodation Guidance (CRAG) can be found at https://www.publications.scot.nhs.uk/files/cc2022-01.pdf  (April 2022 version).

How much do Care Homes cost?

The cost of care homes varies with the individual Care Home concerned and the locality. In Edinburgh £1,200 per week is quite normal; outwith the city costs might be closer to £900 per week. You are entitled to free personal care in Scotland (£246 per week) and most residents will have a State Pension and possibly a private pension, but with care costs running at over £60,000 per annum there is usually going to be a significant shortfall in income so the capital will be depleted.

The house – often the largest capital asset

The value of your house will be disregarded if your spouse still lives in it, if a relative over 60 lives there, if a relative with incapacity lives there or if a child under 16 lives there. The local authority will also have discretion to disregard the house in other cases where it is reasonable to do so – perhaps when a family member has given up their own home to care for a relative. Otherwise, you will be expected to meet the cost of your care from the value of your house.

The house – the mechanics

The house can be sold in order to release capital from the house. However, if the family wish to keep the house they can enter into a deferred payment scheme with the Council whereby the debt to the Council is rolled up as an interest free loan secured over the property and does not need to be repaid until after the resident passes away. This allows the family to rent out the house meantime and can permit the value of the house to be preserved for a longer time.

Giving assets away – the notional capital rule

Many clients, anxious to make sure their family inherit their assets, wish to give their assets away – and in particular the house. If it seems that this solution is “too easy” – it is! When carrying out the initial financial assessment the Council will check whether the individual ever owned a house and if so what happened to it. If it was transferred to family members then, if the Council think that this was done partly to avoid care costs, they will disregard the transfer and treat the individual as if they still owned the asset – the asset is then “notional capital” and will be taken into account when determining what assistance the individual is entitled to. In some cases, they can reclaim the house from the new owner and will certainly do everything possible to ensure that the house is used to pay for the resident’s care. The notional capital rules can also strike at gifts of money or other assets and also conversion into disregarded assets – notably some types of investment bonds which can be disregarded – if this was done to avoid care costs. Contrary to popular belief there is no time limit – the Council can look back in time indefinitely.

Solutions?

One of the best planning tools for care costs are effectively drawn Wills. The traditional Scottish Will of “everything to each other and on the second death to the children” is less useful if the survivor goes into care and the whole estate is then used for care costs. Instead the Wills can provide for a trust to be set up on the first death. The trustees will hold the estate for the benefit of the spouse. However, the trust estate will not “belong” to the surviving spouse and cannot therefore be taken into account in the financial assessment. This can potentially ring fence half of the couple’s assets from care costs.

At ELP Arbuthnott McClanachan we offer a personal service providing expert advice tailored to your own specific circumstances.  If you would like advice on your Will, please get in touch.

Note: All figures correct at 2014.