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's 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's 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's daughters sharing between them the full current value of their mother's 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's 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's 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.