CHAPTER 19

LATER LIFE PLANNING

Power of attorney

A lasting power of attorney (LPA) is a legal document that provides one or more people (known as attorneys) whom you appoint to deal with your affairs as if they were you, subject to certain conditions and obligations. LPAs replaced enduring powers of attorney (EPA) in England and Wales in 2008 – although EPAs executed prior to the change remain valid, no EPAs may be created since 1 October 2007. In Northern Ireland LPAs are governed by slightly different rules. The equivalent in Scotland is known as a power of attorney and the rules are also slightly different to those applying in England and Wales.

An LPA is arguably more important in your later life stages, given the higher likelihood of losing mental capacity compared with middle age. Ensuring that someone has the legal means to make important legal, financial and medical decisions on your (or your parents’) behalf when you (or your parents) are not capable of making those decisions is a prudent and responsible piece of forward planning.

A person acting as an attorney must follow certain principles that govern what they can and cannot do. These principles include:

• acting only within the powers set out in the LPA
• acting in the best interests of the donor
• involving the donor in decision making as far as possible
• not taking advantage of the donor’s situation to benefit the attorney personally
• keeping property and money separate from the attorney’s.

In England and Wales an LPA must be registered with the Office of the Public Guardian (OPG) in order to be valid. However, because it can take up to four months to register an LPA I recommend that you register it at the outset to avoid delays if it needs to be used. LPAs can be wide-ranging, including allowing your attorney to sell property, operate your bank accounts or even provide guidance as to what type of health treatment you would like to receive in certain scenarios. Alternatively, you could make your LPA limited in scope to deal with only a narrow range of scenarios.

The old-style EPA needs to be registered with the OPG only in the event that it is to be used when the person subject to the EPA (known as the donor) has lost mental capacity. If the donor hasn’t lost mental capacity, the EPA can be used without being registered, although there can be practical difficulties with banks and investment providers refusing to deal with an attorney where the EPA is unregistered.

In England and Wales there are two types of LPA: a property and affairs LPA, which covers financial and legal issues, and a personal welfare LPA, covering things such as where you will live and medical preferences. Since 2005 it has also been possible to create what is known as an advance decision to state preferences for medical treatment that one would like or not like if one were no longer able to decide for oneself.

If you have strong views on medical treatment, you should set these out in either a personal welfare LPA or an advance decision, but ensure that your general practitioner and your next of kin know about it. In most cases a personal welfare LPA will override an advance decision as long as the LPA is prepared after the advance decision and it specifically confers authority on the attorney.

If someone loses mental capacity but they have not established an EPA or LPA, it is possible for a friend or relative to make a deputyship application to the Court of Protection. The Court will then consider conferring specific powers on the prospective deputy making the application, to deal with the person’s legal and financial affairs, together with various legal obligations. The Court also has power to appoint someone else as the deputy if they think the applicant isn’t suitable (e.g. they have a criminal record).

In Scotland, a power of attorney (PA) can include powers to deal with financial assets (known as ‘continuing powers’) and/or personal welfare. While continuing powers can be conferred for use regardless of the mental capability of the person subject to the PA, they can be used for welfare-related aspects only if the subject has lost mental capacity to make such decisions. All Scottish PAs must include a certificate signed by a Scottish legal professional or medical practitioner to the effect that the person granting the PA is making the decision freely and understands the implications. Before it can be used the PA must be registered with the OPG in Scotland.

In Northern Ireland, an LPA must be registered with the Office of Care and Protection (OCP) if it is to be used when the subject of the LPA has lost mental capacity.

Making wills in old age

There are a number of potential problems associated with older people making wills, particularly when they deprive relatives of inheritance. The case of Golda Bechal highlights these.² Mrs Bechal left her £10 million estate to a couple who ran her favourite Chinese restaurant, to the detriment of her immediate family. The family contested the will on the basis that Mrs Bechal executed it without being fully aware of what she was doing. The case was eventually settled in favour of the beneficiaries of Mrs Bechal’s will but not until after several years of legal wrangling.

Another case involved Dr Christine Gill, whose parents, John and Joyce Gill, had left their entire estate of more than £2 million to the RSPCA charity.³ The court was told the Gills were a ‘very close family’ and there had been no major rifts to explain cutting their only child out of the will. Indeed, the daughter did thousands of hours of unpaid work helping to run the family’s 287-acre farm and selflessly supported her troubled mother, Joyce, who suffered from various phobias.

Dr Gill argued in court that her mother had been coerced into making the will by her ‘domineering’ father, John, who died in 1999. Judge James Allen QC said Mr Gill was a bully and a ‘stubborn, self-opinionated, domineering man, who was prone to losing his temper’. His wife, a shy woman, deferred to what he wanted, said the judge. In 1993 Mrs Gill signed a will leaving everything to the RSPCA, despite being said to have an ‘avowed dislike’ of the organisation. Judge Allen found that Joyce Gill had been coerced into making a will that was against her wishes and awarded the estate to the daughter.

To avoid disputes about your (or any elderly relative’s) will after death, you need to prove that you (or your relative) had ‘testamentary capacity’ (i.e. you had the mental capacity to make decisions) at the time the will was made. Although the test for testamentary capacity is not quite the same as the medical test for mental capacity, it is still a good idea to obtain a statement from your family doctor that confirms you have mental capacity. In addition, to avoid legal claims from those with legitimate claims as your ‘dependants’, you should make reasonable provision for them in your will. Otherwise such individuals might be able to contest your will.⁴

Nevertheless, all is not lost if someone loses mental capacity to make a will as it is possible to create a statutory will providing that the person wishing to make the will is either an attorney under a registered EPA or LPA or has been granted a deputyship by the Court of Protection and subsequently applies to the OPG with a formal proposal for the terms of a statutory will. However, sophisticated estate planning is unlikely to figure highly on the list of permitted actions.

Long-term care fees

Much attention is focused on the issue of long-term residential care costs and the impact they can have on a family’s wealth. The consensus of all the available research seems to be that one in three people will need some form of long-term care. In many situations, funding care fees while remaining in your own home can actually be more expensive than residential or nursing home care costs, because of the need to meet the cost of care and of running and maintaining the home. It has been estimated that the average cost of care at home for just two hours a day would amount to £7,300 per annum.⁵ My own experience from working with clients is that 24-hour live-in care can easily cost more than £100,000 per annum.

On average, an individual can expect to pay around £27,612 a year for a residential care home, rising to more than £38,000 if nursing is required.⁶ However, the cost of residential or nursing home care varies widely depending on the location, as illustrated by Table 19.1. The average life expectancy for those entering residential care is about 2.5 years.⁷ However, if we remove from the statistics those severely sick and disabled people who are admitted to care homes straight from hospital, the average stay in a care home for a self-funder (i.e. someone not receiving state care fees funding) is actually closer to four years, with a one in eight chance of living more than seven years.⁸

Care costs are fully funded by the NHS if the ‘primary’ need is for healthcare. This is assessed by the NHS when the patient is discharged from hospital or moves into a care home and since 1 October 2007 has been covered by the National Framework for NHS Continuing Healthcare and NHS-funded Nursing Care. However, like hospital stays, such funding affects an individual’s entitlement to a state pension and certain other benefits. In addition, the individual has no say in the choice of care provider or establishment.

Means-tested care fees funding

Means-tested care fees funding is assessed and provided by the social services departments of local authorities. Each local authority can choose its own eligibility criteria, although national guidelines set out the core rules and legal obligations. As a general rule any person who is assessed with having more than a modest amount of income or capital is not eligible for means-tested care fees funding (see Table 19.2).

Table 19.2 Capital limits for care funding 2014/2015

Source: Department of Health (2014) ‘Charging for Residential Accommodation Guide (CRAG)’, April.

The current capital upper limit of £23,250–26,000 means that most affluent people will need to fund all of their care fees, at least until their capital falls below the upper limit. A reducing scale of support applies between the lower and upper capital limits, based on you contributing £1 a week for every £250 in assets over £14,250 (in respect of those living in England).

Certain assets are excluded from the means-tested care fees funding assessment, including:

• an individual’s home that continues to be occupied by a spouse, civil partner or someone living with the claimant as a spouse or civil partner
• an individual’s home that continues to be, or is intended to be, occupied by a relative aged over 60 or who is incapacitated
• the proceeds of the sale of the home to the extent that the capital is used to buy a replacement property for the resident spouse, civil partner or qualifying resident
• previous outright gifts to individuals or trustees as long as these were not, and can’t be shown to have been, made with an intention to deliberately avoid paying care fees
• the surrender value of life insurance policies, including investment bonds but not capital redemption bonds.

Proposed changes to care fees funding

There are two major changes proposed for long-term care fees funding over the next few years. Starting from April 2015, individuals requiring care may defer paying towards their care costs, under a ‘universal deferred payment’ arrangement that will enable them to defer payment of care costs until after their death by taking a local authority loan that would be secured on their home. A number of local authorities already offer deferred payment arrangements on a discretionary basis.

The second and more welcome change relates to the roll-out of a national minimum eligibility assessment for support. The basis for assessing eligibility for care will be simplified and harmonised to stop the postcode lottery that currently exists. Whether this is achievable in practice, with hard-pressed local authorities, remains to be seen. No one aged over 65 will have to meet care costs if these first arise after April 2016 and they have assets worth less than £14,250. Those with assets between £14,250 and £118,500 will have to meet some of the costs of residential care up to a cap of £72,000 for ‘eligible’ care costs, which are within the local authority’s assessment of what it will pay towards this cost. If the person requiring care cannot find a residential care home to deliver this care at this price, or they cannot find one they like within this budget, the individual or their family will have to ‘top up’ the difference. These additional payments will not count towards the care cap. In any case, those needing care will still have to pay towards the cost of food and accommodation, and this has been set at a maximum of £12,000 per annum. It is estimated that the new cap will benefit the 16% of older people who face care fees of more than £72,000.⁹

Figure 19.1 projects the cumulative care costs for someone who has capital above the proposed new upper limit of £118,000 throughout, based on the average annual care costs for England. Clearly, the length of time that care is required has a large impact on the cumulative total cost to the individual, with this varying from £120,000 for four years, £174,000 for eight years and £234,000 for 12 years in the projection. One point to note is that the proposed care fees cap of £72,000 is met only after just over 3.5 years, because I have assumed that the local authority definition of the individual’s contribution to ‘eligible care’ is £20,000 compared with the actual cost of £28,000. This seems a reasonably prudent basis on which to assess the potential liability to personal wealth. An additional point worth making is that the cost of the better quality care homes and those in London and the South of the UK will almost certainly be greater than the £28,000 used in the example, as will the difference between actual cost and ‘eligible care’ costs for the purposes of the cap.

Figure 19.1 Illustrative cumulative care costs

Interestingly, parents of those under 18 requiring care will not have to meet any of their care costs because the care fees cap will be zero. People requiring care between the ages of 18 and 65 with assets above the £14,250 capital threshold will have to meet some of those costs but with a lower, yet to be decided, cap than the £72,000 that applies for those aged 65 and over.

Life assurance bonds

Although some local authorities do try to include investment bonds in care fees funding assessments, the legislation and guidance are quite clear that such capital must be disregarded.¹⁴ However, any ‘income’ taken from an investment will be assessed as income for fees funding purposes, but if the ‘income’ is stopped when care fees start, such income will then cease to exist and, as such, will be disregarded under means testing. A capital redemption bond is not one that is treated as providing life insurance and therefore is not disregarded for care fees funding assessment.

Immediate care fees annuity

It is possible to take out care fees insurance by way of an immediate needs annuity when you know that you have to fund care fees. Whether buying a care fees annuity is a good use of family wealth or not depends on for how long care fees need to be paid, the cost of the care fees annuity, the impact that care fees will have on the family wealth and the extent to which preserving wealth for other family members is a priority. Immediate care annuities are useful if you would prefer to make a known payment up front in return for passing to an insurance company the risk of meeting the agreed level of fees for the rest of your life.

There are only a handful of insurers active in this market and the maximum amount of fees benefit is usually limited to £5,000 per month. While care fees benefit can also be protected against general inflation, care fees inflation has, historically, risen at a higher rate. Therefore, claims over the long term might see the cost of care exceed the insurance benefit.

The reality of care fees funding

Most people want to know that they will have a choice about the type and quality of care, if required, that they will receive in later life. Financial planning that has the effect of avoiding having to fund care fees means you will, to a large extent, give away your choice to the local authority. This may not be a desirable objective. However, you might be of the opinion that any planning that has, as a long-term additional benefit, the potential outcome of giving you and your family the choice of whether or not to use family wealth to fund care fees, either wholly or to top up local authority funding, is better than not having the choice.

The reality for most affluent and wealthy people is they will have to use their own income and capital to fund a substantial element, of the cost of any long-term care fees that might arise in later life. The important questions that you need to ask yourself are:

• What quality of care would you wish to have if you needed it and how much is it likely to cost?
• Would the anticipated care costs be higher than the amount your local authority would classify as ‘eligible’ care costs and if so how much would you be likely to pay in addition to the proposed eligible care cap of £72,000?
• What impact will funding capped and uncapped care fees and accommodation costs have on your overall wealth and your ability to leave a legacy to your family, friends and/or causes?
• What implications for your investment strategy arise from potentially funding long-term care fees?
• What risk does long-term care represent to you given your family history, current and anticipated health status, and your views about government-sponsored assistance?

A good wealth planning strategy, coordinated by a caring and knowledgeable financial planner, should help you to find the answers.