Contributing towards the cost of long-term care is an issue that has been in the news for some time now. It affects or potentially affects a significant number of people in the UK and, as a result, should be of considerable interest to financial advisers.
The process dictates that the State (via the local authority) will financially assess a claimant who is in permanent residential or nursing home care if a claim for financial support is made.
The local authority will pay all the costs if assets are £10,000 or less or nothing where assets exceed £16,000. A partial contribution is made where assets are between these two figures.
In a recent case (CIS7330/95), the claimant was a resident of a nursing home who was claiming income support. As a matter of fact, the claim was made by the resident's daughter.
The case was first heard before the social security appeal tribunal and was then pas sed on for a decision by the social security commissioner.
The case turned on whe ther an insurance investment bond owned by the claimant should be taken into account or disregarded in applying the capital test. The claimant owned an investment bond effected with Equity & Law more than five years before the claim was made.
The first issue to determine was whether the investment bond should be disregarded from the capital test. The commissioner's view was that the tribunal had been wrong to reject the bond as a “disregard”.
There is no definition of a life insurance policy for the purpose of paragraph 13 of schedule 4 of the National Assistance (Assessment of Resources) Regulations 1992 which, broadly speaking, lists the various items that can be disregarded. The regulations do, however, refer to the surrender value of a life insurance policy being disregarded.
While the commissioner expressed the view that the concept of a life insurance policy had been stretched somewhat by life offices, it was nevertheless a fact that the company issuing the policy was authorised to do life insurance business and the policy was a whole-of-life policy provi ding for payment of the sum assured contingent on the death of the life assured.
It was clear, therefore, that the policy was a life insurance policy – the reasonably recent case of Fuji v Aetna made this much clear. Appar ently, a similar decision had been made in an earlier case (CIS122/91).
Having determined that the policy itself should be disregarded, it was clearly stated that any proceeds taken from it should not. This included any withdrawals. In effect, once removed from the bond, the withdrawals would have left their protective wrapper, so to speak, and so would be taken fully into account.
Although this decision is welcome, a word of warning is also necessary. The disregar ding of the bond for the purpose of the regulations does not mean that an insurance policy will be disregarded in every case. It is important to bear in mind the dreaded deliberate deprivation rules. This is a most powerful anti-avoidance provision that enables the full value of a bond to be brought back into consideration for the purposes of the capital assessment.
There is no per iod after which one can be sure of being safe from the application of these provisions. It all depends on the facts.
Of course, the longer there is between effecting the bond and claiming, the better. Bef ore the marketing departments leap into action, however, the key to the operation of the deliberate deprivation rules is the purpose for effecting the bond. If there is anything in the marketing literature highlighting the fact that the bond would be disregarded, then this (while not necessarily being fatal to establishing that the bond should be disregarded) would not help.
The position could be stren gthened if the investment is made through a qualified adviser who clearly expresses, in a reasons why letter, the main purpose for eff ecting the bond.
Some may consider a “belt and braces” approach that res ults in the bond being made subject to trust. One view is that this is unnecessary and may not help the reasons why process by possibly appearing to be too clever by half.