At the time a person needs care at home or in a residential or nursing home, the question that is uppermost in the minds of their family is how are they going to afford the cost of the fees for the care. With average costs being over 30,000 per annum, at this point, any hopes of leaving an inheritance for their family disappear as funding their care needs becomes uppermost and they have to fund this care with the sale of the family home.

The current position is that people have to fund the costs of their care if they have assets including their home, above 23,000 in England and Northern Ireland, 22,000 in Wales and 22,500 in Scotland. There are some exceptions to these rules but these are very limited in scope and the move most people make next is to investigate any help available from local charities but this is usually on a temporary basis as charity resources are limited.

Most people want a permanent solution and one of the best is a care fees plan – also known as an Immediate Needs Annuity(INA). The cost of the premium is driven by a person’s age, sex and state of health and is arrived at following receipt of medical information from the nursing home and the client’s doctor. The more frail and dependent a person – the lower the premium costs as, it is directly related to the life insurance company’s opinion on the person’s mortality.

The care fees annuity solution is a much underused method of ring – fencing a family’s assets as, once the future costs of care have been covered plus a margin for any extras, it puts a stop-loss on the situation and any amounts remaining are likely to become an inheritance for those mentioned in the Will.

Although the lump sum premium does not qualify for tax relief, as long at the monthly payments are made directly to a registered care provider, they are paid tax free and do not affect the tax position of the person receiving the care. (To be a registered care provider, they must be registered with the Care Quality Commission).These plans are flexible as well as tax-efficient as, should the person no longer need long term care, the net payments can be paid directly to the person with tax deducted at 20% by the annuity provider. although this tax applies only to a fraction of the payments.

As well as providing for the cost of care fees, these plans are also a tax efficient way of reducing an inheritance tax liability because, whilst securing a 40% discount on the cost of the care fees annuity, the cost of the lump sum can also be deducted from the estate as long as this excludes the costs of any capital protection.

Using this strategy to plan for care enables a family to meet the following aims:-

A limited sum has been allocated plus a reserve to deal with any unforseen events and the expenses have not been able to deplete the balance of savings.

Any remaining monies are preserved for the estate and the person receiving care can achieve their wish to leave an inheritance. The costs of care have been dealt with thus protecting the balance of assets.

Savings are at the lowest level when the lump sum has been paid. Once this has been done, all future care fees are then covered, thus giving any monies left the chance to grow and replace savings.

In order to achieve the above objectives, ensure that you get the correct advice from an expert financial planner who has the necessary experience in the area of long term care.

Before you consider a long term care insurance plan that will safeguard against large care costs just access your remarkable free article written by barbara Davies, CEO of equityCare