Lasting Power of Attorney and Immediate Care Plans
Often when people hear the phrase ‘Estate Planning’, they often think of writing their Will or organising Lasting Power of Attorney (LPA). But in practice, Estate Planning often involves more than many people think. When families begin reviewing their estate plans more holistically, especially with our guidance as later life financial and legal specialists, they are often surprised to discover gaps and inconsistencies.
A well-considered estate plan usually brings together several areas of financial and legal planning. Wills, LPAs and Trusts form part of that picture, but so do questions about inheritance tax, long-term care considerations and investment management.
Alongside legal arrangements, financial planning considerations are often closely connected. Investment decisions, pension planning and inheritance tax allowances can all influence how efficiently assets might pass between generations both in lifetime and on death.
For some families, the most pressing aspect of estate planning, particularly with regard to LPAs, is considering how financial resources might be used later in life, particularly if care or support becomes necessary. With this in mind, thoughts turn naturally to aligning investment management, long-term care funding and inheritance tax strategies.
With regard to LPAs and long-term care funding specifically, how (usually) your parents would like to be cared for in their later years – and how much they are willing to pay for it – are conversations best had as early as possible. Such preferences and directions can be detailed in the LPA documents themselves or via an accompanying Letter of Wishes. Indeed, this is one of our key services and forms an important part of our client review process. One option attorneys should certainly consider, especially when considering the ‘best interests of the donor’ principle, is to cover the cost via an Immediate Care Plan. In this article, we cover specifically this potential solution to care funding.
Care costs can be much higher than expected – most attorneys we meet are wildly out when it comes to estimates of just how expensive. According to recent research from ICP provider Just, as many as 85% of those attorneys who had previously helped find care for a loved one were shocked at the cost. Worryingly, 31% expected the cost would only be up to £30,000 a year - less than half the national average and around a third of some of the expected care costs you might expect in this part of North West Bristol. With an estimated four in five people aged 65 and over likely to require some level of care before they die, millions of families are sleepwalking towards a nasty shock.
An Immediate Care Plan (ICP), also sometimes known as an immediate needs annuity, is a type of insurance policy to pay for care costs. In exchange for a one off lump sum from the person who needs care, the ICP pays out a regular monthly amount to cover the cost of providing that care. The size of the lump sum required to buy an ICP is based on individual circumstances, closely linked to the person’s current health and wellbeing and how long they are expected to live. Each policy is individually underwritten, so there are no ‘standard’ rates. However, as a rough guide, the initial lump sum for an ICP might be three to four times the annual income required. So if the income required from the ICP is £50,000 a year you might need to pay a lump sum of £200,000.
Payments made from an ICP are exempt from income tax when paid to a UK registered care provider, regardless whether the care is being provided in a care home or at home. They are bought using the person in need of care’s own money – savings, investments, or commonly, the proceeds of a house sale.
ICPs are not all the same, so as an attorney you will need to consider carefully which type is best for your loved one. With a standard ICP, the income is paid out immediately from the point the ICP is purchased. However, there is also a deferred option, where the premium is lower but the income begins at an agreed time in the future. You can also choose an ICP with certain protective features, perhaps best thought of as added insurance, though these tend to be more expensive. For example, you can choose to protect up to 75% of the initial sum, so if the person for whom the ICP was bought dies earlier than expected, the cost of the annuity is not all lost. There is also another feature, known as ‘escalation’ that can be factored into ICPs. This increases the amount paid out over time, either by the Retail Price Index measure of inflation or by a fixed amount. This can be helpful to cover the cost of care homes where fees increase each year.
The most important thing is to discuss your situation with our specialist later life advisers who will be able to guide you towards the best solution for you and your loved one. Indeed, such is the specialist nature of ICPs and care funding in general, they can only be taken out through appropriately qualified later life financial advisers. A financial adviser who is accredited by the Society of Late Life Advisers is more likely to understand both this and the applicant’s wider needs.
ICPs can provide good value for money if the person for whom care is being provided lives long enough to recoup the premium. They can also give two-fold peace of mind; firstly that the person will not have to rely on state care alone, and secondly that not all of your assets, or a loved ones’ assets, will be eaten up in care costs. An ICP can also be used as a way to reduce the size of a person’s estate by the amount used to buy the care annuity – and therefore reduce the inheritance tax bill their loved ones may have to pay. Another example of joined-up thinking.
A full and frank conversation with a qualified financial adviser – ideally one accredited with SOLLA such as ourselves – is essential to weigh up the potential costs and benefits of an ICP.
Estate Planning Events
To help people understand these issues more clearly, we will be running a series of free Estate Planning seminars locally this June and July. These sessions will explore key elements such as Wills, LPAs and Trusts and explain how they work alongside your financial planning arrangements like inheritance tax, investment management and care fee planning.
Tuesday 23rd June - 2.30pm - 3.30pm - St Peter’s Church, Henleaze
Wednesday 24th June - 10am - 11am - Thornbury URC
Tuesday 30th June - 6pm - 7pm - Stoke Lodge, Stoke Bishop
Wednesday 1st July - 2.30pm - 3.30pm - St Peter’s church, Henleaze
Tuesday 7th July - 10am - 11am - Henleaze Bowling Club
Call 0117 3636 212 or email community@haroldstephens.co.uk to book your place.