Care Home fees and savings - a slightly different query than usual

Hi,

I'll keep this as brief and as clear as possible:
1) My FiL has moved to a care home just over a year ago (self funding).
2) His only child is my lovely wife and has financial PoA. She is the sole beneficiary in his will.
3) His house is sold and all assets are now in cash in a savings account.
4) His total assets have always been below IHT limits.
5) His solicitor (for the PoA) and us all agree that his mental ability is good (it's just that he cannot be bothered to feed himself and his body is frail). The care home is maintaining the body, for the mind, he reads the paper, watches Sky sports, reads books and smokes in the car park (but he is happy and that is how we want it to be).

At current pension income, investment rates and care home fee increases, he will exhaust funds within 10 years.

He wants his capital preserved and the income from the investments to pay his care fees. This needs a 10% post tax return. We have ways to achieve this (we are property specialists for several years now and can get these returns), but for him, it would be too risky/convoluted for him to invest in these kinds of assets. We also hold this view for my wife to invest in his name via the PoA.

Our tax specialist (who is also his friend of many years) has come back with an interesting suggestion for all of us.

Her view is for us to commit to pay his care fees going forward for the rest of his life. In return, we take his capital and can easily invest in the "risky" things that can pay the fees.
- We have the financial means to do this and the capital has uses for us.

He is very happy with this proposal (esp as we take on the risk). We are happy with the risk.

Now the questions I have for you all is this:
1) Is this a good idea? are we stepping into potential minefields?
2) Should we structure this with a legal agreement? Do we need to?

As we already have PoA, we will clearly document all decisions and cash flows...

Thanks in advance for your feedback and time reading this post...

S.
«1

Comments

  • Errata
    Errata Posts: 38,230 Forumite
    First Post Combo Breaker
    We have the financial means to do this and the capital has uses for us.
    The bottom line is that as his attorney the capital is for his use, not yours.
    .................:)....I'm smiling because I have no idea what's going on ...:)
  • Mojisola
    Mojisola Posts: 35,556 Forumite
    Name Dropper First Post First Anniversary
    edited 20 April 2013 at 5:57PM
    schocca wrote: »
    Now the questions I have for you all is this:
    1) Is this a good idea? are we stepping into potential minefields?
    2) Should we structure this with a legal agreement? Do we need to?

    1) Yes - to the minefield.
    2) If you do go ahead, you absolutely have to have a legal agreement.

    As FIL is mentally competent, he should take advice from a different financial advisor/solicitor. If he's not competent to make his own decisions, it shouldn't go any further.

    At the moment, you have the financial means to fund his care. Think about the "what ifs" - one of you dies (if your OH dies, who inherits FIL's money and who will become his representative then?); one of you becomes longterm sick - would that affect your earning potential?; the property market collapses - how would that affect your income?
  • pmlindyloo
    pmlindyloo Posts: 13,049 Forumite
    Name Dropper First Anniversary First Post
    I agree that this plan is fraught with difficulties.

    There are other ways of using his capital to the best advantage with far less of a risk.

    You really need some specialist advice about investing this money through something like a Care Annuity.

    I don't know if posting on the Investment board might be a good idea.

    Have a google about Annuities for Care Home Fees and see whether this might be suitable.

    I know very little about them only that my brother in law used one for his mother when she went into a care home.

    Also, don't forget to check that FIL is receiving all the benefits he is entitled to e.g. Attendance Allowance not means tested)
  • Biggles
    Biggles Posts: 8,209 Forumite
    Combo Breaker First Post
    As pmlindyloo suggests, take a look at Immediate Care Needs Annuities. You will need to go via an IPA, but the income is tax-free, because it is paid direct to the care home. And you never have to worry about the investments running out of cash, as the payments are made until death.
  • schocca
    schocca Posts: 5 Forumite
    pmlindyloo wrote: »
    I agree that this plan is fraught with difficulties.

    You really need some specialist advice about investing this money through something like a Care Annuity.

    Also, don't forget to check that FIL is receiving all the benefits he is entitled to e.g. Attendance Allowance not means tested)

    That only works if the FIL wants to do the Care Annuity -> I've already discussed this with him and the answer is NO. As he is fully able in the brains department, the POA has no rights to override his wishes (and that was also clearly stated by his solicitor).

    But - I was thinking of being a little bit crafty - we do the care fees commitment with him and then WE purchase the care annuity for him... as we will then be able to invest the money how we see fit.
    pmlindyloo wrote: »
    Also, don't forget to check that FIL is receiving all the benefits he is entitled to e.g. Attendance Allowance not means tested)

    We have sorted that already. He's getting the max allowed.
  • Errata
    Errata Posts: 38,230 Forumite
    First Post Combo Breaker
    Crafty? You plan to deceive your FIL? That's not crafty, that's bog standard deception so you can meet your own financial wants. For the avoidance of doubt, that's classed as abuse.
    .................:)....I'm smiling because I have no idea what's going on ...:)
  • schocca
    schocca Posts: 5 Forumite
    Errata wrote: »
    Crafty? You plan to deceive your FIL? That's not crafty, that's bog standard deception so you can meet your own financial wants. For the avoidance of doubt, that's classed as abuse.

    And I agree if all this was done inside the POA and with his money. That is not the discussion here.

    If we sign to say we will pay his care fees for life, we cannot do this unless we have something to invest with.

    If we invest it, it only works if it's in our names (in something we understand and have a considerable amount of experience in). If that's not possible, then this proposal is dead as we cannot commit otherwise.

    Look, this is a discussion about a proposal that was suggested to us. I'm looking at ideas and I'm definitely not looking for a legal disaster area to get involved in.

    Going back to the crafty point - if he is unwilling to invest in a care annuity, that's fine (and HIS decision), but if we do sign a legal commitment to pay his care fees in return for his capital, then I need to the freedom to invest as we see fit - the care annuity is one of the risk mitigation points to consider. I would consider it in the menu of investment options we would have at our disposal.
  • Errata
    Errata Posts: 38,230 Forumite
    First Post Combo Breaker
    Look, this is a discussion about a proposal that was suggested to us. I'm looking at ideas and I'm definitely not looking for a legal disaster area to get involved in.
    In that case, discuss it with the OPG. They have a great deal of experience of relatives with POA trying on financial stunts.
    .................:)....I'm smiling because I have no idea what's going on ...:)
  • schocca
    schocca Posts: 5 Forumite
    Errata wrote: »
    In that case, discuss it with the OPG. They have a great deal of experience of relatives with POA trying on financial stunts.

    If you don't mind, I'll skip the OPG and ask my FIL to discuss it with his solicitor first. And I've come to the conclusion that this must be inside a legal framework if this was at all possible (or suitable, which is a different matter altogether).

    Your comments mean that these kinds of proposals can be misinterpreted at many levels (and that was useful to know too).

    Thanks to all that have posted comments. I have lots to chew on.

    On a separate note - I hold the same views as Errata(!). Fundamentally, it's his money and his to control. No ifs or buts (or financial stunts).

    My FIL has asked repeatedly for us to take the money and pay his fees. I've had this conversation with him multiple times over the last year. My response has always been - "It's your money and we can only invest it in your name as you want."
    - The proposal from our tax specialist (and don't forget, a good friend of my FIL) is confusing for me. I've discounted all ideas in this space as I fundamentally have the same views as Errata. This proposal has thrown a spanner into my thinking and I don't like it.

    Either way, the FIL discussion with his solicitor is the way forward. And it may even lead to him purchasing a care annuity. Who knows...
  • Annisele
    Annisele Posts: 4,827 Forumite
    First Anniversary First Post Name Dropper Combo Breaker
    schocca wrote: »
    If we do sign a legal commitment to pay his care fees in return for his capital, then I need to the freedom to invest as we see fit

    I agree with the people saying this is a minefield.

    If you sign a legal commitment to pay the care fees and then don't actually do it, what is your FIL's redress? He could sue you - but presumably you'd only have stopped paying because you couldn't pay, so suing you wouldn't help. If he tried to get the state to pay for his care, he'd probably fall foul of deprivation of assets rules.

    This is unlikely to be tax efficient, but could FiL lend you the money at an interest rate of 12% or so? Possibly secured on your house, or some other asset?

    You'd likely have to pay tax on the gains you make on the money, and then FiL would have to pay tax on the interest - so it's probably a non-starter - but if you have some asset you can secure the loan on, it gives FiL a little more security. Plus I think he's less likely to fall foul of deprivation of assets rules if it all goes pearshaped, but you would need specialist advice on that.
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.9K Banking & Borrowing
  • 250K Reduce Debt & Boost Income
  • 449.6K Spending & Discounts
  • 235K Work, Benefits & Business
  • 607.6K Mortgages, Homes & Bills
  • 172.9K Life & Family
  • 247.7K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards