1 : 6 - Long-Term Care Protection

Question 1

What legislation covers long-term care

Answer 1

It is now covered by the Care Act 2014

Question 2

What did the Care Act 2014 cover?

Answer 2

The Act sets out responsibilities for local authorities to ensure that people receive the care services they need, can get information and advice to make decisions and provide the appropriate services for those people to choose from.

It encourages independence and well-being and aims to give greater control and influence to those in need of support.

Question 3

What is the local authority’s role in providing care?

Answer 3

An individual may be able to get care and support from their local authority to help them to live as normally as possible.

The local authority must carry out an assessment of a person’s need for care and support as well as an assessment of a carer’s need for support.

If any of the assessed needs meet the eligibility criteria then the local authority must consider how to meet these needs.

Question 4

What are the steps of the assessment process?

Answer 4

• The local authority does a care needs assessment to identify what help is needed.
• The care plan sets out recommendations about a person’s needs and whether or not residential care is required.
• A personal budget is calculated to assess the cost of the care.
• A financial assessment is carried out to work out how much the individual should pay towards the care home fees and how much the local authority will cover.

Question 5

What is the financial assessment?

&

What factors does it consider?

(5)

Answer 5

The financial assessment is a means test which aims to establish whether or not a person qualifies for assistance from the local authority.

• income, for example a pension
• savings
• investments
• state benefits or other financial support
• expenses, eg, paying bills or rent.

Question 6

A person will generally have to pay for the full cost of care if their ‘capital’ (savings or investments) is worth more than…?

1. England

2a. Wales - (care at home)
2b. Wales - (care in a care home)

3. Scotland

Answer 6

1. £23,250

2a. £24,000
2b. £40,000

3. £27,250

Question 7

An individual living in England or Northern Ireland with capital of less than XXX will be entitled to full care costs funded by the local authority.

Answer 7

£14,250

Question 8

If full care costs are funded, what will they have to contribute in return?

Answer 8

The majority of their income including benefits to the local authority minus a personal expense allowance (PEA).

Question 9

If the individual’s capital is between £14,250 and £23,250, in addition to contributing the majority of their income, they will need to pay XXX for every YYY of their savings between £14,250 and £23,250 towards the cost of care.

Answer 9

XXX - £1

YYY - £250

Question 10

What capital would be disregarded in the financial assessment?

Answer 10

• Investment bonds with life assurance elements.
• Temporary disregard for personal injury payments.
• Personal possessions are disregarded (unless they were bought with the intention of avoiding residential care charges).

Question 11

How often is the person’s income in a financial assessment looked at to assess how much the Local Authority should contribute to its care fee costs.

Answer 11

On a weekly basis

Question 12

What is the Personal Expenses Allowance (PEA)?

Answer 12

It is the minimum amount of income allowance that individuals are allowed to keep when in social care to pay for:

• personal items
• newspapers
• treats
• toiletries.

This is technically deducted from any assessed income.

Question 13

What are Care Fees PEAs for each country:

1. England
2. Northern Ireland
3. Scotland
4. Wales

Answer 13

1. £24.90 per week
2. £24.90 per week
3. £27.00 per week
4. £28.50 per week

Question 14

What is the NHS continuing healthcare (CHC) service?

Answer 14

If a person over the age of 18 has a disability or complex medical problem, they might qualify for this package of care from the NHS.

This is provided completely free of charge unlike the long-term care funding provided by local authorities.

Question 15

What 4 key indicators are assessed for the CHC service?

Answer 15

1. nature of the care need
2. complexity
3. intensity – extent and severity of need
4. unpredictability.

Question 16

What is the list of health conditions or illnesses that qualify for CHC funding?

Answer 16

There is no list – the decision is based on assessing the individual’s condition.

Question 17

How are jointly held assets treated for the person needing care?

Answer 17

The local authority will include 50% of these.

(For financial planning purposes, therefore, it can be better to hold assets in separate names as far as possible).

Question 18

Can homeowners can be forced to sell their properties

Answer 18

Many believe so, but this may not actually be the case

However, if there is no other method for funding care, the local authority may take legal action to gain funding for a vulnerable person requiring care.

Question 19

If the client wishes to keep the property and no other savings are available, what is another option?

Answer 19

Letting the property to generate income.

(However, this is taxable and is often not sufficient to cover the funding shortfall, in which case additional income must be found.)

Question 20

What is the deferred payment scheme?

Answer 20

This will pay towards care in return for an interest-free charge against the property that must be repaid on death. The property may still have to be sold to repay the debt.

Question 21

What can a care fee annuity be used for?

Answer 21

in exchange for a lump sum payment, a care fee annuity may provide a sufficient guaranteed tax-free income for life.

Question 22

What is the risk of a care fee annuity?

Answer 22

This should help ensure that fees can be met for life and also protect any remaining capital. The risk here is that no capital is returned on death.

Question 23

What are the two types of long-term care insurance (LTCI)?

Answer 23

• immediate care LTCI

* pre-funded LTCI

Question 24

What is an immediate care LTCI?

Answer 24

This can be purchased at any age and at the point of care being required.

Question 25

What is a pre-funded LTCI?

Answer 25

This can be purchased in advance, and only used should care be needed in the future.

Premiums are paid and the policy pays out if the policyholder goes into longterm care.

Question 26

How is an immediate care LTCI structured?

Answer 26

The immediate care plan is purchased with a lump sum, and pays a regular income until death: the income pays for the care provision, and is tax-free if it is paid direct to the care home.

Question 27

With an immediate care LTCI, what does the premium paid depend on?

(4)

Answer 27

• the amount of income required
• if income is required to increase, for example, with inflation
• the age of client
• the state of the client’s health

Question 28

How popular are pre-funded LTCI’s?

Answer 28

Due of the lack of demand for these policies, insurers no longer offer these plans.

Currently there are no pre-paid plans available in the market, however, you may come across clients with existing plans.

Question 29

How is an pre-funded LTCI structured?

Answer 29

The policy is structured such that it pays out a regular sum if care is needed. It commences when the client is no longer able to perform a number of activities of daily living (ADLs).

Eg: washing, dressing or feeding themselves without help; or because of mental incapacity.

The funds paid out are tax-free.

Question 30

How can investment bonds be linked with pre-funded LTCI’s?

Answer 30

Some existing policies may be linked to an investment bond, which is intended to fund the premiums for the insurance policy.

These policies involve more investment risk and, in some cases, can use up the client’s capital.

Question 31

What is an avoidance technique used to qualify for free care for the elderly?

(If personal assets exceed £23,250 (In England))

Answer 31

Gifting away property or savings to another person in order to qualify for financial help from the local authority.

This is strictly prohibited and the local authority can, when assessing someone’s eligibility for funding, look for evidence of deliberate or intentional deprivation of capital such as a property.

Question 32

What is deliberate deprivation?

Answer 32

This occurs when someone transfers an asset out of their possession in order to put themselves in a better position to obtain funding; it usually happens when they give away assets or change ownership shortly before needing care.

Question 33

Is deliberate deprivation a complete no-no?

Answer 33

No, good planning in advance – while the person is in good health – can help to mitigate these issues, eg, holding assets in separate names.

Question 34

In England and Wales:

With Powers of Attorney (PoAs), what do you call someone giving another person the power to act on their behalf?

Answer 34

The donor

Question 35

In Scotland:

With Powers of Attorney (PoAs), what do you call someone giving another person the power to act on their behalf?

Answer 35

The granter

Question 36

What is an Ordinary Power of Attorney (PoAs)?

Answer 36

This is created for a defined period of time if the donor is going abroad or for some other reason and wants someone to have the authority to act on their behalf.

It will automatically be revoked if the donor loses mental capacity.

Question 37

What is a Lasting Power of Attorney (LPA)?

Answer 37

It enables individuals to appoint attorneys to look after their property and financial affairs, and also to make decisions about health and personal welfare; it comes into effect when they lack the capacity to make these decisions themselves.

Question 38

What legislation introduced the Lasting Power of Attorney (LPA)?

Answer 38

The Mental Capacity Act 2005 on 1 October 2007, replacing the Enduring Power of Attorney (EPA).

Question 39

Where does an LPA need to be addressed?

Answer 39

The Office of the Public Guardian (OPG)

Question 40

In England and Wales, what are the Powers of Attorney (PoAs)?

(2)

Answer 40

• Ordinary Power of Attorney (PoAs)

- Lasting Power of Attorney (LPA)

Question 41

In Scotland, what are the Powers of Attorney (PoAs)?

3

Answer 41

• A General Power of Attorney
• A Continuing Power of Attorney
• A Welfare Power of Attorney

Question 42

What is a General Power of Attorney?

Answer 42

Similar to an Ordinary Power of Attorney (PoAs).

This is usually created for a period of time if the granter is going abroad or for some other reason and wants someone to have the power to act on their behalf.

A General Power of Attorney ends at the specified time or upon the request of the granter (using a deed of revocation) and will automatically be revoked if the donor loses mental capacity.

Question 43

What is a Continuing Power of Attorney?

Answer 43

This allows the granter to appoint a legally authorised person to look after their property and financial affairs should they become incapable of doing so themselves at some point in the future.

Question 44

What is a Welfare Power of Attorney?

Answer 44

This allows the granter to appoint attorneys to make decisions about the health and welfare of the donor in the event of mental incapacity.

It can be combined into a Continuing and Welfare Power of Attorney.

Question 45

When setting up a new LPA, how many attorneys can be appointed?

Answer 45

Any number of attorneys can be appointed

Question 46

How are the attorneys responsibilities decided?

Answer 46

The donor chooses whether any of them can act separately, known as ‘jointly and severally’,

OR

If they have to agree and act together, known as ‘jointly’.

The donor can decide to allow them to act separately on some things but together on others.

Question 47

What are the two separate types of LPA?

Answer 47

• Property and financial affairs

&

• Health and welfare

Question 48

Which type of LPA is normally used?

Answer 48

The donor can make one or both, but because each type has very different purposes it is normal to do both.

Each LPA has to be registered separately.

Question 49

What does a property and affairs LPA give the attorneys powers to manage?

Answer 49

All the donor’s money and property:

eg: managing a bank account, paying bills, arranging benefits and selling the home.

However, restrictions can be imposed on the attorney’s powers: for example, it could prevent them from selling a second home which the donor has already bequeathed in a will.

Question 50

If the doner has a partner, what is advised?

Answer 50

To hold bank accounts and investments in separate names, as any joint accounts will be frozen when either party loses capacity until the power of attorney is fully enacted.

Question 51

What happens if a person giving an LPA wants to include the use of a discretionary investment manager to manage their investments?

Answer 51

The LPA must specifically include that power.

Question 52

What limits can be set on a health and welfare LPA?

Answer 52

Limits such as religious considerations relating to medical treatments.

Any such requirements must be separately signed and witnessed.

Question 53

How can Personal welfare LPAs be amended?

Answer 53

Personal welfare LPAs are like living wills but have the force of law and cannot normally be amended in any way by attorneys themselves, by relatives, or by doctors.

Question 54

What is Equity Release?

Answer 54

It is a way of accessing money tied up in a person’s home (the equity).

Question 55

Who is Equity Release available to?

Answer 55

Generally, it is only available to those who are 55 or over.

Question 56

How much can be raised with Equity Release?

Answer 56

It will be between 20% and 60% of the market value of the house.

Question 57

Why is the amount that can be raised restricted?

Answer 57

Because the lender or reversion company is taking a risk on house prices and does not know when it will get its money back, as it cannot sell the property until the individual dies or moves into care.

Question 58

What are the 2 types of Equity Release scheme?

Answer 58

• Lifetime mortgages

- Home reversion

Question 59

What is a Lifetime mortgage (ER)?

Answer 59

This applies when an individual borrows money secured against their main residence, while retaining ownership and responsibility for maintaining it.

Interest is charged on the borrowings which can be repaid or added on to the total loan amount

Question 60

What is the benefit of a Lifetime mortgage (ER)?

Answer 60

When the individual dies or moves into long-term care, the home is sold and the money from the sale is used to pay off the loan.

Anything left goes to the individual’s beneficiaries.

Question 61

What is a No negative equity guarantee?

Answer 61

With this guarantee the lender promises that the individual (or their beneficiaries) will never have to pay back more than the value of the home. This is the case even if the debt has become larger than the property value

Question 62

What are the 2 types of Lifetime Mortgages?

Answer 62

• An interest roll-up mortgage

* An interest-paying mortgage

Question 63

What is an interest roll-up mortgage?

Answer 63

When the individual receives a lump sum or is paid a regular amount and is charged interest which is added to the loan.

This means there are no regular payments, as the amount borrowed, including the rolled-up interest, is repaid at the end of the mortgage term when the home is sold.

Question 64

What is an interest-paying mortgage?

Answer 64

When the individual receives a lump sum and makes either monthly or ad hoc payments. This reduces, or stops, the impact of interest roll-up.

The amount borrowed is repaid when the home is sold at the end of the mortgage term

Question 65

What are the advantages of Lifetime Mortgages?

Answer 65

• Depending on the provider, the money can be released as a guaranteed monthly income or a lump sum.
• The individual can stay in their home for as long as needed. • The loan is only repaid on death or the sale of the property.
• There is the potential to benefit from any future increases in the value of the property.
• Fixed interest rates prevent interest spiralling out of control.
• Many schemes guarantee the total debt cannot exceed the value of your property.
• When the house is eventually sold and the debt is paid off, there might be money left over to provide some kind of inheritance.
• The equity released on your main residence is tax-free.
• ER schemes can help to reduce inheritance tax liability, as any outstanding loan is a debt against the estate.

Question 66

What are the disadvantages of Lifetime Mortgages?

Answer 66

• It might affect an individual’s entitlement to benefits, or support from the local authority, as any money released through ER is likely to affect the assessment of capital and income.
• Any inheritance passed on at death will be reduced and depending on the interest roll-up may mean there is nothing left from the sale of the home after paying off the mortgage.
• They can be inflexible if circumstances change.
• The lender’s permission may be needed for someone else, such as a relative, carer or new partner, to move in.
• The borrower might need to pay arrangement, valuation and legal fees.
• The lender might not allow the transfer of the debt to a smaller property.
• The seller will still have to keep the buildings insured and the home in good condition

Question 67

What is a Home reversion scheme?

Answer 67

This is similar to a lifetime mortgage but with a major difference. Instead of borrowing money and being charged interest, part or all of the property is sold.

With a home reversion scheme, all or part of the property is sold at less than its market value in return for a tax-free lump sum, a regular income, or both, and the seller remains in the home as a tenant, paying no rent.

Question 68

With a Home reversion scheme - what happens when the home is eventually sold?

Answer 68

The reversion company gets their share of the proceeds of the sale.

Question 69

How does a Home Income Plan work?

Answer 69

A cash sum is released from the owner’s property and this is used to buy an annuity which in turn pays out a monthly amount. Part of this is used to pay the interest bill of the loan, and the remaining balance can be used for an income.

The original loan is then repaid when the property is sold, or the owner moves into a care home.

Question 70

What is the advantage of a Home Income Plan over a roll-up mortgage?

Answer 70

As the interest is repaid every month, the loan does not increase over the years.

Question 71

What is the main problem with Home Income Plans?

Answer 71

The amount of money that has to be released from a property is determined by current annuity rates.

For a home income plan to be feasible, it must provide enough to cover both the interest as well as a monthly income, so for most people this may mean releasing a large proportion of the equity.

Because annuity rates are so low, home income plans are normally only an option for those aged 75+.

Question 72

What are the other advantages of Home Income Plans?

Answer 72

• Regular income for life
• The original loan will not grow
• Regulated
• Specialist lenders – the chosen lender should subscribe to the professional body, the Equity Release Council (formerly Safe Home Income Plans or SHIP), which includes a ‘no negative equity’ guarantee for borrowers: any lender who is not a member should be avoided.