Pay for care – but protect the home
This reader wants to support his wife and children. Amelia Murray views his options
James Green’s dilemma is likely to be one faced by many people his age: his wife Pat, 72, has dementia and has been in care for a year. Her care costs £725 a week, most of which is paid by Nottinghamshire council. Mr Green contributes £100 a week.
Mr Green, 73, a retired head teacher who used to write educational books with his wife, wants to make sure she is taken care of, whatever happens to him. But he would also like to leave the three-bed Twenties house he lives in, which is worth £185,000, to his children.
He understands doing both might be difficult because the property is owned jointly and, as he does not have power of attorney for his wife, he can’t make any financial decisions on her behalf. If he dies first, Mrs Green will inherit the house and it may have to be sold to fund her care.
Mr Green pays around £650 a month towards the £14,500 mortgage, which he plans to clear by the end of this year. He receives just over £6,000 a year from the state pension and £18,806 from his teacher’s pension. He also receives royalties from his publications; in a good year he can earn around £3,000. He has £2,500 in cash and is able to save around £500 a month.
He is mindful of future expenses, such as funeral costs, and wants to know how he can maximise his savings.
Patrick Connolly, chartered financial planner from Chase De Vere, said:
When determining the contribution that local authorities may make toward care costs, it is the individual requiring care who is assessed. With a married couple, the spouse’s capital and income are ignored.
Mrs Green’s share of their property is also ignored as Mr Green still lives there. Mr Green has sufficient income to meet his living expenses and it makes sense to keep his finances as flexible as possible.
He does not know when he will need money to pay for house maintenance, funeral costs or any other short-term requirements, so he should continue to build his cash savings in easy-access accounts. As Mrs Green no longer has capacity she cannot establish a power of attorney. This means that she is unable to enter into a transaction or do something that may have legal consequences.
The Court of Protection will look after the interests of those who have lost mental capacity, haven’t set up an enduring or lasting power of attorney and have assets that could be used for their benefit, such as Mrs Green’s share in the property.
The court will typically appoint a “deputy” to manage the individual’s assets. This deputy could be either Mr Green or someone appointed by the court. It is likely that the court would need to approve any major financial actions before they are taken.
If Mr Green wants to either sell the property or take out equity release, otherwise known as a “lifetime mortgage”, he would need to show that half of the proceeds were for his wife’s benefit.
He also needs to be very careful if he releases capital as the local authority may then take this into account when assessing Mrs Green’s financial circumstances. As the money will no longer be in the property it will no longer qualify for the spousal exemption.
While Mr Green would like to pass on his property to his children, his options are limited. A court-appointed deputy wouldn’t be allowed to simply give Mrs Green’s share of the property to her children.
If Mr Green died first then, as the property is held on a “joint tenancy” basis, it would automatically transfer to his wife. The local authority would then reassess Mrs Green’s financial situation and would probably stop paying her care costs.
The property might have to be sold or a deferred payments agreement made, where the local authority places a legal charge on the property.
If Mrs Green dies first, Mr Green could give the property to his children on his death.
He could give the property while he is still alive, although there are a number of big caveats to this, including that he must no longer get any benefit from it.
Also, if he needs care soon after making the gift, the local authority may treat it as deliberate asset deprivation.
Owain Wright, founder of Care Funding Guidance, said:
Mr Green’s situation shows the importance of sorting out a lasting power of attorney (LPA) before capacity is lost. Now the only course of action is to approach the Court of Protection and ask to be appointed as a deputy. It’s a simple process but takes around six months and the costs will be at least £1,500. In comparison, an LPA costs £300-£600.
Once Mr Green is a deputy he will have the power to sell the property or release equity, although this will probably be with court supervision.
Mr Green should also remember to take out an LPA for himself.
The property issue is going to raise a moral dilemma: does Mr Green want what’s best for his wife or his children? Mr and Mrs Green own their property as joint tenants, so if Mr Green dies first his wife will inherit it and will probably have to pay more towards her care.
A “care fee annuity” could be considered in this situation, which would place a cap on the total cost, ensuring that more of the estate goes to the children. The annuities are individually underwritten and the cost will vary according to age and health. A rough estimate can be worked out by multiplying the annual income you need by four.
Mr Green could also change the ownership of their property to tenants in common. If he died before his wife he could leave his half of the house to their children or a trust. Assuming that the children didn’t want to sell their half, Mrs Green could not sell her half, and the value of her share for the purposes of the means test would therefore almost certainly be nil.
If this worked, Mrs Green’s care would remain state-funded and Mr Green could leave instructions in his will ensuring that the children agree to pay the top-up on his wife’s care.
It would mean that Mrs Green remained in what was probably a lower-quality care home than she could otherwise afford, but of course the children would benefit greatly.
Usually if you make a substantial gift the local authority can later question if you were deliberately depriving yourself to avoid having to meet your own care costs.
With a tenants-in-common arrangement, however, the gift passes as a result of the death of the first partner and cannot therefore be questioned by the local authority.
James Green is keen to ensure that his wife is taken care of but also wants to leave their home to his children