Reserve care costs in Bank of Mum & Dad
PARENTS are being warned against giving large lump sums to adult children without keeping money in reserve to cover potential care costs in later life.
Their generosity could backfire if they need expensive residential or nursing home care in their final years.
Most parents who gift “living inheritances” do not factor in how much they may need to cover care costs when deciding how much to give, according to the Just Group Care Report 2021.
Only one in 25 made helping with any future care costs a condition of making gifts to adult children, leaving them exposed once the money is spent.
One in six will rely on children to help pay for any future care, while six in 10 are confident they could afford to pay for care from their own pockets.
However many are likely to have underestimated how much they may need, with the average care home in England costing £35,412 a year, according to Which?. If they need nursing care as well, that figure jumps to a punitive £50,908. Local authorities only step in once assets fall below £23,350 in England, which includes the value of the family home, depleting many estates.
Stephen Lowe, group communications director at retirement specialist Just Group, said the Bank of Mum & Dad has to temper the urge to be generous: “People know future care costs could run into many thousands but this is rarely part of the discussion when handing over significant sums.”
The Government has repeatedly delayed social care reform and Jim Boyd, chief executive of the Equity Release Council, said making gifts without considering care costs is risky: “We urge people to seek regulated financial advice to explore how all of their income and assets can best be used to provide for them in the future.”
Separate research suggests one in three grown-up children in their 40s and 50s will fund their parents’ care costs from cash in the bank, even though the average Briton has less than £7,000 in savings.
Six in 10 have never talked about the cost of care with parents and only a third consider they themselves may have to foot the bill, according to wealth advisers Killik & Co.
Adult children aged between 40 and 59 hope to fund care costs from a range of other sources including their parents’ pensions and investments, downsizing or equity release.
Killik & Co head of wealth planning Svenja Keller said the so-called “sandwich generation” risk being squeezed between financial obligations to both parents and children: “To protect themselves, they should open a family conversation around longterm care and assisted living. This is best done early on, when everyone is calm and collected.”
She suggested involving someone neutral to help start the trickier conversations and to start early, otherwise you may not have the resources to fund the best care options: “Be open and honest about finances, as that makes it easier to plan.”