Long Term Care Risks
July 29th, 2010 News, Observations, Retirement PlanningYour Family Needs You
If you are in your 40′s or 50′s, you may well have parents who have needed or may need to enter Long Term Care. If you are already retired, you will be acutely aware from the experiences of some of your friends and peers, that there is roughly a 1 in 3 chance you may need Long Term Care. Ideally that would be at home but it might be in more sheltered accommodation or in a care home. The majority of would be ‘self funders’ (most of us) are unaware of the risks we take and the means available to us to mitigate those risks.
As a cautionary note, often family say, if something happens to mum or dad, they will come and live with us. yet this is often said without realising the sheer commitment that may be required. The primary trigger for entry into long term care is often not confusion but incontinence. Nor does it take account of the fact that the care and equipment needs of many, is beyond the skill set or the means the family can provide. Such sentiment is also often expressed without consultation with the parents, who often have conflicting views, as the are desperate not to be a burden on their family.
Research by Chris Horlick of Partnership, one of the providers or Long Term Care annuities, indicates around £5.5 billion is spent each year on funding ‘private care’ alone. Of this, only £100 million is spent on insurance contracts which are designed to cover the cost of care and help preserve capital. And of course capital preservation is not necessarily about protecting your children’s inheritance. It is about helping you retain your own choices in later life. As the Tesco Slogan says ‘Every little helps.’ It is worth acknowledging, Local Authority funded places tend to be at a non commercial rate and the care homes that will accept such placement are as a result, often run on a shoestring to make ends meet. Some such homes are truly excellent but others are not at the top of anyone’s list of best places to stay.
At present the cost of care is estimated to average £26,000 p/y, although this does not accurately reflect the near £50,000 cost in some Southern parts of England. Of the 130,000 people who go into residential care each year, 53,000 (41%), are self funding. They have levels of income or capital which precludes them from qualifying for substantial local authority support apart from Attendance Allowance for which all self funders are eligible and sometimes a Registered Nursing Care Contribution from the NHS. Only 7,000 people or 5% of the total entering care in 2009 received advice from a suitably qualified adviser and solicitor. Of those, only 3,000 asked for a quote for a care annuity and only a third of those 1,000 of those purchased one.
The most powerful figure provided by the research is apparently tiny proportion who requested an annuity quote and went ahead, (for they are actually a third of those who requested a quote). The reasons for going ahead if you were in this position (or your attorneys are if you have lost capacity) would be (1) to protect the value of your estate to provide a legacy to their children, rather than see it eroded by high ongoing care costs (2) to protect the financial security of your surviving spouse or partner (3) to help retain the use of your residual capital so you do not run out of money and then have to rely upon state funding, which may result in your having to move to a care home which will accept state funded residents.
If you are an appointee for a person who lacks capacity (eg under a power of attorney) there is also the need to fulfil your duty to act in the best financial interests of the vulnerable person. Failure to take financial advice and to set up an annuity, if that was the best thing to do, would probably be negligent and a claim might be made against you by aggrieved beneficiaries. It is therefore wise to at least consider the options as soon as possible.
If all 53,000 of the self funders actually sought proper advice, then, extrapolating the same ratio above, almost 18,000 would logically go on to buy a care annuity. Thus, through ignorance, most self funders are placing their resources at a greater risk than is necessary.
In Short
- Do not be blind to the risks and opportunities
- Seek advice now, on how to structure your estate(s), to protect against undue depletion
- The earlier you take advice, the better prepared and protected your estate will be, should you need to go into care.
- If you are liable to self funding, do get an Long Term Care annuity quote to help you make an informed decision. Remember, 1/3rd of those obtaining a quote, go on to purchase an annuity.
This article was co-written by Karl Lavery of Baxter Fensham and David Coldrick, Partner at Wrigley’s Solicitors
