Invest to pay for care home expenses

wombat56

Sorry, general enquiry here. Have checked other messages but none give info I need.

My mother has recently suffered a couple of minor strokes and has is no longer capable of looking after herself so we are putting her into a care home.

As we have power of attorney over her we are consolidating all her assets in order to invest it so that she will be able to live off the interest with as little loss of capital as possible (enabling her to remain in care as long as needed – she is 76 and her mum lived to 96!)).

She will have £250,000 to invest (leaving her £25,000 in a quick access savings account) and she has an income of about £18,500 a year (pensions and care allowance). The home will cost about £35,000/year (that is the business to get into folks!) so she needs to make the most out of her investment so the difference between outgoings and pension + income does not eat into the capital too much and it can last 20 years or so.

Reading the forums there seem to be numbers of different ways of doing this, but most require a lot of moving the money around.

Would people recommend taking on an IFA and just leaving it to them (we do not want the hassle of checking all the funds constantly to make sure they are maximised) or just put it into something like the ICESAVE account? We don’t care about inheritance, just want to make sure that she is comfortable and happy as long as needed.

Liz_the_Whizz

wombat 56 - I was looking into covering care home costs as I expect my father in law may need residential care within 12 months.

Came across the concept of an immediate needs annuity to cover care home costs. May be worth a look.

dunstonh

Would people recommend taking on an IFA and just leaving it to them (we do not want the hassle of checking all the funds constantly to make sure they are maximised) or just put it into something like the ICESAVE account? We don’t care about inheritance, just want to make sure that she is comfortable and happy as long as needed.

The reasons there are different ways of doing these things is that different people have different needs and there are pros and cons with each solution.

For example, stick that £250,000 in a savings account like ICESAVE and she will wipe out her age allowance increasing her annual tax bill by £524.70 a year (increasing with each budget).

There are products that are ideally suited to this sort of scenario, such as Scottish Equitable's five for life (if you want some guarantees) or Hartford's Lock in investment bond or Riley (Royal London). Even investment ISAs and unit trusts which offer capital security on death exist (minimum return of capital invested minus withdrawals).

Lets say you get a rate of 5% on deposit. Thats £12,500. £2500 goes in tax making it £10,000 and a further £524 goes in additional tax due to reduction in age allowance making the annual income £9476 or £789pm. That will see you eating into the capital at a steady rate an in turn reducing the interest in a spiral until it runs out.

Not advising anything but purely as an example, Scot Eqs 5 for life product guarantees 5% income for life with growth potential subject to investment returns. The 5% is net of tax as it is a withdrawal of capital and not true income. i.e As investment grows over time, you are drawing 5% of it each year. If it goes up by 6%, you are drawing 5% so 1% increases the value. If it goest up by 2% and you draw 5% then the value decreases by 3%. That "income" at 5% will be £12,500 (£1041pm) with no tax to pay and it has some guarantees in place.

wombat 56 - I was looking into covering care home costs as I expect my father in law may need residential care within 12 months.

Came across the concept of an immediate needs annuity to cover care home costs. May be worth a look.

Whilst that is a valid possible option, in this case an investment bond may be better suited as care home costs are not currently needed and its only a maybe. Investments into investment bonds are not included in the means test for local authority care support as long as it is done before the event and not with the purpose to avoid paying fees (so you dont say you invested it there to avoid using it for fees!!!).

cheerfulcat

dunstonh wrote:

Whilst that is a valid possible option, in this case an investment bond may be better suited as care home costs are not currently needed

? Thought that was the whole point of the OP! In which case surely the immediate needs annuity would be ideal?

dunstonh

cheerfulcat wrote:

? Thought that was the whole point of the OP! In which case surely the immediate needs annuity would be ideal?

That is why I said it was a possible option. A capital protected immediate needs annuity may be come out too expensive compared to the other options. However, we dont know that.

I'm not going to rule out or say one option is better than another based on the limited information available at this stage. Better to say what the options are and then wombat can decide for him/herself if they need to see an IFA or not.

My post focused more on the interest side as that appeared to be the key option what was being considered by wombat.

EdInvestor

Check out this recent thread on the issues and options

If you're looking at a possible 20 years, the immediate needs annuity is a no brainer for at least part of the shortfall.

dunstonh

If you're looking at a possible 20 years, the immediate needs annuity is a no brainer for at least part of the shortfall.

How can it be a no brainer if we dont know the cost or consequences?

It could be... but it may not be.

EdInvestor

Beware of false economies

dunstonh

EdInvestor wrote:

Beware of false economies

Note the article says:

However, running out of money can be avoided. One way of guaranteeing security and payment of care is through purchasing a care fee or immediate care annuity. This is where a lump sum is paid to an insurance company, which promises to meet certain set payments for the rest of the policyholder's life. As with any plan, it is vital to shop around for the best deal, but in general the longer you need the care, the more value you will get.

There are different ways of achieving this and sometimes a combination of ways is best. There is no one size fits all option. Just as the article says.:

Wright points out there are all kinds of other strategies a specialist IFA can offer to keep the family house out of the resources equation.

margaretclare

wombat56 wrote:

My mother has recently suffered a couple of minor strokes and has is no longer capable of looking after herself so we are putting her into a care home.

As we have power of attorney over her we are consolidating all her assets in order to invest it so that she will be able to live off the interest with as little loss of capital as possible (enabling her to remain in care as long as needed – she is 76 and her mum lived to 96!)).

Sorry, but the way you word this is chilling. Has poor mum got no say in the matter at all?? You are 'putting her'....you have 'power of attorney over her' - it has been my understanding that you may have PoA over her financial affairs but not over *her*.

With a history of strokes she may possibly NOT survive the 20 years you foresee. The thought of living for 20 years in a care home is, in any case, even more chilling.

I am 71, you see, so is my DH, and we'd absolutely hate for anyone to write in these terms about us.

As it looks to me, what does it matter if there's 'loss of capital', so long as there is enough to see her time out and doesn't have to pay a lot of tax on her income? Does it matter if there is no capital at all left on her sad demise?

Margaret

EdInvestor

dunstonh wrote:

There are different ways of achieving this and sometimes a combination of ways is best. [/I]

Quite so.As I said:

If you're looking at a possible 20 years, the immediate needs annuity is a no brainer for at least part of the shortfall.

I hear what MargaretClare says about the OP's use of language.But one suspect some older people tend to bring this on themselves and may need to rethink their attitude towards their money a bit more carefully.