Retirement planning is often about building up wealth so you can live your dream lifestyle when you are older. So, you may spend a significant portion of your pension and other savings on travelling, hobbies, and spending quality time with your family.
However, there are some practical expenses to consider too, such as the cost of later-life care. Unfortunately, the likelihood of needing care may be higher in the future as people spend more time living in poor health.
Indeed, the King’s Fund reports that women had an average life expectancy of 83.1 years between 2018 and 2020, but 19.3 of those years would have been spent in “not good” health. The pattern is very similar for men.
Additionally, healthy life expectancy is growing slower than overall life expectancy. This means that, although you may live longer, you could also spend more years dealing with health issues.
As a result, you may be more likely to need care in the future, and the cost of this is rising quickly. According to Which?, the average cost of a UK care home in 2022/23 is £800 per week– an increase of 19% on the previous year.
If you need care, the local authority will carry out a means test to see whether you qualify for financial support. Those who don’t will likely need to pay for their own care, and if you do not plan for this, you could quickly deplete much of your wealth.
It is particularly important to consider your home because, in some cases, you may need to sell it to fund your care. Ultimately, this could mean that you can’t pass as much of your estate on to loved ones after you die.
Fortunately, there are ways to potentially protect your home in this situation. Read on to learn more.
You may have to pay for your care if you have assets worth more than £23,250
When you require care, your local authority will conduct a means test to determine who needs to pay for it.
They will ask you about various assets including:
- Property (including property overseas).
If your total assets add up to more than £23,250 in England, or £32,750 in Scotland and £50,000 in Wales) in the 2023/24 financial year, you will likely be expected to pay for your care. This is known as your “upper capital limit (UCL).”
The local authority then reassesses your finances each year and as your capital depletes, you may eventually fall below the UCL. At this point, the council will cover some or all your care costs depending on the value of your remaining assets.
Your home is only exempt from the means test as long as a qualifying dependent lives there
The rules about your home and whether it is included in the means test depend on who lives there.
If you move into a residential care home, your property is not part of the means test provided a “qualifying dependent” is still living in it. A qualifying dependent is:
- Your spouse or civil partner
- Your unmarried partner
- A close relative over the age of 60 (or incapacitated in some way)
- A close relative under the age of 16 who you are legally responsible for
- An ex-spouse or partner if they are a single parent.
However, if there is not a qualifying dependent living in your home when you move into a care facility, the value of the property will normally be included in the means test.
In practice, this means that if you need to move into a care facility, your home is exempt from the means test while your spouse or partner remains living there. Yet, if you pass away and they inherit the property, the situation changes.
If they then need to move into a care facility, there is no longer a qualifying dependent in the home and the entire value of the property could be included in the means test. If they deplete their other savings, this could mean that they have to sell the home to pay for care because their assets still exceed the UCL.
The good news is, by considering the way that you and your partner own the property, you may be able to shield a portion of your home from the means test.
Being “tenants in common” with your partner could help you protect your home
The way that you and your partner own your property affects how it is transferred when one of you dies. By considering the type of property ownership, you may be able to protect your value of your property from the cost of your spouse’s long-term care, with your share of the property being distributed to your beneficiaries in accordance with your wishes.
There are two main forms of joint property ownership that apply in this situation:
- Joint tenants
- Tenants in common.
Joint tenants have equal rights to the entire property and individual shares cannot be left to anybody else in a will. Instead, when one of you dies, the other immediately inherits the property.
Tenants in common, on the other hand, each own a 50% share of the property and these individual shares can be left to others in a Will.
If you and your partner are joint tenants, the property passes to them when you die – or vice versa – and 100% of the value is then included in a means test if the surviving partner needs long-term care.
Conversely, if you are tenants in common, you may be able to leave your portion of the house in a trust and name other parties – perhaps your children or grandchildren – as beneficiaries. This means that, if you die and your partner needs care after you are gone, only their 50% share of the home is considered for means testing.
You may not have thought about this before and it could mean that you need to use more of your own wealth to cover care costs in the future. Luckily, if you start planning for this expense now, you may be able to protect more of your estate.
It may be beneficial to seek some professional advice here because the rules surrounding property ownership and estate planning can be complex.
Get in touch
Please get in touch if you have any questions about rising care costs and how to plan for this expense.
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This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.