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Long Term care costs and Tuition Fees, what do they have in common?
No one wants to pay for them!

With Brexit back front and center we can have a quick look at some political hot potatoes from the June election campaign. One thing I have taken away is that there are some serious flaws in the democratic process. Politicians from all spectrums are happy to give away taxpayers money in order to gain votes, with the voters seemingly oblivious to the fact that they and future generations will be paying the tax that was used to buy the votes. I do wonder if all political promises should be fully costed and signed off by a credible authority before they are used to confuse the public.

Tuition fees are a subject close to my heart, with one daughter at University and another due next year. Few of us would object to paying for what we get, but there is real potential that the interest accumulated on the tuitions fees and maintenance loans will be far more that original loan over the thirty year period before the government writes them off. Based on the increases in the retail price index plus three percent the interest rate is currently 5.7% [May RPI 2.7%]. A £57,000 student loan will turn into £300,000 debt for the government to repay in thirty years' time if the student never earns above £21,000.00. Even if they do go on to earn a higher income, what will be the effect on the economy be with these people having 9% less to spend for the next thirty years? Writing off the debt, now quoted as a £100 Billion or leaving Universities unfunded will be unaffordable. Our law makers need to stop scoring political points and get their thinking caps on. In the meantime parents and grandparents might want to consider starting junior ISAs [£4,128 allowance 2017/18] to build up a capital sum [18 years x £4,128 = plus 5% pa investment return would create a fund worth £121,937] that can be used to help pay for university. Grandparents paying regularly out of income would also benefit from reducing their inheritance tax liability.

As an associate member of the Society for Later Life Advisers [SOLLA] we regularly work with clients seeking to find ways to pay for their care costs. Long term care is expensive; we have some clients who pay £1,000 per month for a residential home to Power of Attorneys [POA] paying between £3,000 – £9,000 pm for a nursing homes or nursing care at home. Unlike the students most of our elderly population have benefitted from a lifetime of saving and property ownership and therefore may have the potential to pay for some or all of the costs. In a report commissioned by BUPA in 2011 it stated that ‘the average length of stay was 801 days, but with a considerable tail of long stayers, half the residents died by 462 days. Around 27% of people lived for more than three years, with the longest living 20 years.’ Statistics such as this make paying for care such a difficult area of advice.

 

Long term care links with Inheritance tax planning in that most of us, having worked all our lives would like to pass our hard earned savings to the next generations unmolested. When planning to mitigate inheritance tax, care must be given to avoid falling foul of the deprivation of capital rules. These state that you must not give away your assets deliberately to become dependent on the state for your care costs. Currently the state starts to pay some of your care costs if you have less than £23,250 in savings. Your home would most likely be included in your assets unless a qualifying person will continue to live there. Many people entering a care home prefer not to sell their home in the hope they might one day return. In some cases the local council may offer a deferred payment scheme which allows you to delay paying for care until your die. More often the council will give you time to sell your property under a temporary arrangement; however it is down to your local authority.

It is a balancing act between making sure that you are properly cared for and at the same time are able to pass your estate to your family. At the time of writing, I am not aware of any prefunding care plans; there are some Immediate Care plans available, that based on age and health will provide for your care with a single lump sum payment. These will help place a limit on the total cost of care. These schemes can help reduce the pressure on POAs, who worry about the money running out. They come with some options to allow capital to be returned to the estate in case of death shortly after set up. Alternatively, we create a plan to generate high levels of income together with regular maturing investments to create a cash flow to pay the care fees. Using our cash flow modeling systems we can estimate how long the capital will last. It is quite common that following the death of the person in care that we transfer the income paying assets to accounts for the named of the beneficiaries who themselves may be approaching retirement.

Should have any questions about this article you can contact me at RJISInvestTogether@RaymondJames.com

Alternatively, If you are concerned about any of the matters discussed in this article you should seek advice from an Independent Financial adviser [IFA] or a suitably qualified professional

 
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