The wealth test
If you have less than £11,500 in assets, your local authority will pay for the full cost of care. However, if you have more than £11,500, you have to start paying for yourself. And your own home may be counted as an asset. If your spouse continues to live in the house, it won't be counted as an asset but if you live on your own, it will be. If the total value of your assets is between £11,500 and £18,500, you'll be liable for part of your care costs. If the total value of your assets is more than £18,500, you will have to pay the full amount yourself.

So if your only asset is your home, you could find yourself in a situation where you have to sell it. Although your spouse can continue to live in it, you may not be able to leave it as an inheritance for your descendants.
(Note: Recent legislative changes in Scotland mean that different rules now apply.)

Cost of care
Looking across a UK average, to meet the cost of long-term care, you need to provide for approximately £260 a week or £13,500 a year for residential home fees, or £360 a week or £18,700 a year for nursing home fees (Source: Age Concern). Some of this will come from the State. All pensioners are entitled to a basic income from the State pension and possibly from Attendance Allowance or other benefits.

Insuring for care
There are a number of approaches to planning for long-term care. You can take out a long-term care insurance policy to insure against possible future care costs. Usually the insurance company pays out the amount of the sum assured when you are unable to complete two or three activities of daily living (ADLs). These include washing, dressing, feeding and mobility.

Investment bonds
If you are a higher-rate taxpayer, investment bonds can be a very attractive option. Bonds offering capital protection are suitable if you require an element of capital protection. With-profits bonds may offer suitable returns, but insurance bonds combining insurance with investment aren't usually suitable because of higher charges. Equity investments with some capital protection, such as specialist long-term care investment bonds, are designed to give investors access to world stock markets, but provide protection of capital against the downside risk.

Unit trusts
Another means of financing long-term healthcare costs is with unit trusts. Capital protection can be achieved by investing in protected unit trusts, but you might have to pay capital gains tax (CGT) when selling them.

These investments can grow securely and you can then use the profit to buy a lifetime annuity that pays out benefits immediately. Impaired lifetime annuities will pay out the benefits immediately at a level dependent on a person's age, and the benefits will escalate each year. So it will cost less to buy, the older you are.

With a deferred lifetime annuity, income payments are made after two years and guaranteed for life. As there is a deferred period before it pays out, there is a lower initial cost.

Long-term care bonds
These cover the costs of private care if it is needed in old age, but are designed to give bondholders their money back if it is not. Typically, policyholders place their lump sum into one or more of a range of investment funds and a small proportion of this is regularly siphoned off to pay for long-term care insurance premiums.

If care is eventually needed, the investment element is used to meet the initial costs and once this has been exhausted, the insurance element takes over and pays out for the rest of the bondholder's life. Should care not be needed, however, the remaining value of the bond can be passed on as part of the bondholder's estate.

It's not a pleasant thought having to consider funding long-term care, but if ignored it can cause severe financial hardship to a family. To discuss your situation and to look at the options available to you, please e-mail or contact us for further information.