Covering the costs of care

The average cost of a residential care home in the UK was £33,852 per annum (December 2019) and this figure was significantly higher for London. This means that should you require care, it can have a significant impact on the value of your estate.

An insurance option

Immediate needs annuities are a type of annuity (also known as immediate care plans or care fees annuities) that pay out a guaranteed income for life to help cover the cost of your care fees in exchange for a one-off lump sum payment. The income from this type of annuity is tax free if it is paid directly to the care provider.

The price of a plan is based on how much income you need and the insurance company’s assessment of how long you are likely to need the income for. This depends on your age, current annuity rates, the level of income you need and your health and life expectancy.

An investment option

Long term care bonds are lump sum investments designed to pre-fund your anticipated long-term care needs. They have the attraction that they should be able to provide your long-term care costs at a lower cost than immediate needs schemes. They also offer the prospect of long-term growth, surrender values and death benefits if the long-term care benefits are not required.

Investments can be written in trust to mitigate your IHT liability as well as cover care home costs. Examples include discounted gifts and loan and trust arrangements.

If you place an asset in trust, you no longer own it. If there is no beneficial interest, then the asset cannot be assessed by a local authority. You can reduce your assets as long as this is not considered deliberate asset deprivation. You can reduce your IHT liability by reducing the value of your estate and allowing any growth in the investment to be free of IHT outside your estate.

Outcome

Using these options to cover the significant cost of care home fees can give you peace of mind that your fees will be paid for the rest of your life. This will protect you from the risk of running out of money and may help you protect some of your assets for future generations.