How we helped Janet manage care home costs

Making it possible to afford the care you want 

Even if you’ve built a generous pension pot for retirement, the future can be unpredictable. You may want to cover care home costs, or help your children. At Canaccord Wealth we can help you find the most tax-efficient and straightforward way to achieve this.

Getting to know our client

It was a stressful time for Janet and Alison, worrying about Janet’s future. Alison had a demanding job and a family, so she couldn’t simply become Janet’s carer, but they both knew that Janet couldn’t continue living alone. She had not been diagnosed with dementia, but she was very frail and had suffered a few falls around the home.

Fortunately, Janet had registered a ‘property and financial affairs’ Lasting Power of Attorney naming Alison as her attorney. This allowed Alison to deal with the money side of things without creating more worries.

Why Janet and Alison needed our help

Janet’s income of £25,000 per year after tax was made up of her teacher’s and state pensions. However, the care home she had chosen cost £88,000 each year, which would obviously create a shortfall. This shortfall was likely to increase as the care home costs rose each year.

Janet also had £2m from a combination of existing savings and expected proceeds from the sale of the family home - but naturally she wanted to leave as much as possible to her family, including some gifts while she was still alive.

Our Canaccord Wealth solution

We began by setting up a £400,000 care fees annuity to provide £66,000 per annum (pa) (guaranteed for life), rising by 5% pa* to cover the rising care costs – obviously the care costs might increase by more than 5% each year, but at least this should help. Janet would also benefit from capital protection, which would repay a portion of the lump sum if she were to die within six months. As this income is paid directly to the care home, it’s tax free.

Apart from this, we kept £100,000 in cash for emergencies. We always recommend keeping a cash buffer, usually calculated to provide between three and six months’ income. However, as Janet would be in care, our specialist advised her to set aside a larger amount.

This left £1.5m for Janet to use as she wished. As the care costs were covered, she could make outright gifts to her family. An outright gift must be made without reservation and Janet would need to live for seven years after making it, to keep it free of inheritance tax (IHT). If she died within that time, it would be included in her estate for IHT purposes.

What happened next

Before deciding how much to give the family, Janet and Alison considered investing in Janet’s own name, or in IHT-efficient assets making use of Business Relief. Or placing some assets in trust, which should become IHT free after seven years. 

We advised them on the pros and cons of these options, based on Janet’s health, how much control she wanted to retain, whether she might need further income in future, and her attitude to risk.

Keeping in touch

We meet Alison regularly, to ensure that the arrangements still meet Janet’s needs, and we’ll make adjustments if necessary. Together, we ensure that Janet claims everything she is entitled to (e.g. attendance allowance). If her condition deteriorates, Alison will check whether Janet is entitled to NHS Continuing Healthcare.

^{*This is an indicative cost and we review each case individually, considering each client’s health and their ability to undertake daily activities, as well as other variables.}