View more on these topics

Keep it in the family

It seems an age since John Major, who was then the Prime Minister, made his famous comment about “cascading wealth down the generations”.

For many people who have built up any savings, those words touched a chord.

If you have savings and you worked hard to build them up, you can probably think of better ways to spend your money than on care fees at a nursing home. Most of us would rather keep it in the family.

Even more so when we realise that our savings will include the value of our home – house, bungalow, flat or cottage – if we do need to go into a care home, and we no longer have a partner or a dependant still living in our former home.

Under the current rules, just £16,000 of capital is enough to trigger personal responsibility for all residential LTC fees. As long as the capital stays over that figure, he or she would have to pay all their care home fees.

A frightening thought, especially when you consider that getting on for half of all women who reach 85 need to move into care homes at some stage and that the average cost of a place in a nursing home is £20,000 a year or so.

Ironically, now that families are not always as close as they used to be because of divorces, second families and such, there are often more people for whom we would like to provide something by way of a legacy, rather than fewer.

There is a viable alternative to risking their legacies. If your client wants to keep their savings in the family even if they do need care, then LTC insurance can be a very useful purchase.

Who will it work for?

Ask yourself two questions. Which of your clients have got what they consider are worthwhile savings or investments? You ought to be able to make a fair-sized list.

Then ask, which of your clients would want to pass these savings and investments to their family when they die? Almost certainly exactly the same list as the first one.

This is where long-term care insurance comes in.

The amount of insurance you arrange does not need to be the full amount of care home fees by any means – these can be paid in part from the client&#39s income – and a client will not, for example, have any ordinary domestic costs while living in a home.

But LTC insurance will save your client digging into savings and investments to pay care bills. There will be money to leave.

Let us look at a typical situation. I am sure you will have clients who fit the profile of my example, Rosemary.

Rosemary is a civil servant, just coming up to 60. She married at 30 and with two daughters born within the space of three years.

Then she found herself a divorced mother, struggling and juggling with money by the time she was 35.

She lives in the Gloucester area. Her house is nice without being grand and its value is nudging the £80,000 mark. Like the rest of us, she assumes this value will continue to go up as time goes on. She worked hard to get it and does not want to lose it.

Looked at one way, if she had to move into a nursing home tomorrow, she could sell the house and its value would pay nursing home fees in her area for around four years.

But looked at another way, Rosemary would have worked hard – in the office and at home – for 40 years and after four years of care she and her family would have absolutely nothing at all to show for all of the work she had put in.

If you think four years is too long a time to be in a home – think again.

The Scottish Residential Census Return shows that, of all older people leaving long-term care in the year to March 2000, almost one-fifth had been in care for five years or more. Five years would have used up the value of Rosemary&#39s house completely.

Yet with advice from you and pre-planning – and admittedly some outlay now – there can be a very different outcome though. An outcome which can leave Rosemary&#39s daughters sharing between them the full current value of their mother&#39s house. And some of the increase coming from the investment of the money raised by selling it.

You will need to work out the exact numbers for each Rosemary – or for each Raymond for that matter – from the information you have about them.

Income, outgoings, capital and how much of it if any they might be willing to forego in paying care costs. Then you can arrange an LTC insurance plan around that information.

Using Rosemary as an example, cover could cost her as little as £50 a month, providing initial insurance benefits of around £8,500 a year.

This, added to the income from investing the value of her home, her pension and her state attendance allowance combined should mean there is little if any need to raid the capital she has in order to pay any eventual LTC costs. The cost of insurance shown is based on a plan under which benefits are payable on Rosemary&#39s inability to undertake three out of six activities of daily living on most occasions and it assumes that Rosemary would be accepted at normal rates -the plan described would also pay for care in Rosemary&#39s own home as an alternative.

Premiums would go up each year with inflation although her increasing pension should handle these and the eventual insurance benefits would also keep pace with inflation.

So for this fairly modest outlay, Rosemary takes care of a significant proportion of any future care costs and keeps the value of her own home in the family.

When you advise anyone on an investment, or your client is buying a house or moving house, ask yourself and them – who is this investment intended to benefit? Unless they do not mind it being a nursing home owner – show your client how to keep it in the family.

Recommended

Axa Sun Life cuts bonus rates

Axa Sun Life is cutting bonuses in the Axa Equity & Law With Profits Fund.Both the low-cost homebuyers endowment bonus rate and the investment bond bonus rate were cut by 0.5 per cent to 5 per cent for 2001 from 5.5 per cent in 2000.The personal pension bonus rate was cut by 0.75 per cent […]

Can you pass the stakeholder test?

With just weeks to go before the official launch of stakeholder on April 6, Informed Choice managing director Nick Bamford says unless IFAs can correctly answer the 20 questions posed here,they are unfit to advise on stakeholder. Bamford says: “In my view no one should be providing advice on the highly complex subject of stakeholder […]

Net pension firm offers employee protection

Online stakeholder specialist Pensionsbusiness is revamping its web-based service to employers by offering group life insurance and group income protection to employees. Once an employer has selected a pension scheme online, they can then buy group life insurance and group income protection through Legal & General. Pensionsbusiness is an IFA firm which offers employers an […]

Capital gains tax

5.1 BUSINESS ASSETS TAPER RELIEF AND CAPITAL GAINS OF NON-RESIDENT CLOSE COMPANIESThe Chancellor announced two changes of significance on capital gains. He has also increased the annual CGT exemption. As far as the more significant changes are concerned these are as follows: Business Assets Taper Relief As inferred in the pre-Budget report, the Government has […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com