Protecting your estate from the new social care reforms

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In recent weeks the Government has announced a series of social care reforms, in a long-awaited funding shake-up. These are important changes that need consideration as, unlike NHS healthcare, social care is not a free service for many. The cost of residential care varies greatly throughout the country, and as demand continues to grow with more of us living longer, it is clear that the Government needs to fix the system.

In this article, we will examine these implications in closer detail, and discuss the best ways to protect your estate for your loved ones with our expert service.

In summary

  • The prospect of having to sell your home still seems very possible.
  • Care Fee Wills still protect against the loss of your home to pay for residential care costs.
  • Lasting Power of Attorney allows a nominated person to handle the financial affairs of those who require care.

What is the new social care proposal?

Back in 2019, the Prime Minister promised to fix the social care crisis with a new plan, and on the 7th of September, these details were finally announced. The existing Care Act 2014 framework will be reformed, with new plans that will only apply to care services in England, Northern Ireland, and Wales.

The main changes will apply to individuals who will be going into care for the first time from October 2023, with a focus on capital means-testing, a cap on fees and NHS-funded Nursing Care. According to the Institute of Fiscal Studies, the cost of this will be £14 billion per year, with two new tax increases implemented to raise the funds required for the system to come into effect.

A new Health and Social Care Levy will see National Insurance Contributions rise by 1.25%, with the charge then separated from 2023/24 when it will become a new tax on earnings for all workers, regardless of age. In addition, from 2022 dividend tax rates will also rise by 1.25%, which will raise some revenue towards the reforms from both private company owners and the retired, affluent population.

The implications of the social care reforms

So, what do these social care reforms mean for those needing home or residential care?  Basically, from October 2023 there will be a cap of £86,000 on care costs over the course of an individual’s lifetime. If the person requiring care has assets of less than £20,000, they will not be required to pay anything towards their care. Although, those with assets of less than £100,000 but more than £20,000, will be eligible for some means-tested financial support from the Government.

Currently, there is an asset limit of £23,250 in place, which should mean that more people requiring care can access support from the state. It is hoped that the new system will also make it fairer to those who are self-funding their care, with care fees brought closer in line to those who are receiving funding from their local councils.

For example, if your assets total more than £100,000, you will likely have to pay for care in full, however, the maximum you pay over your lifetime will be £86,000. Once this limit is reached, the local council will pay for the care, However, if you are paying for a more expensive care service the ‘top-up’ fees will not count towards the cap. If at any point your assets fall below £100,000, you will then be eligible for some financial support.

Will I need to sell my home?

The eye-watering costs of care often mean that individuals are often forced to sell their homes to fund the care they need, an issue that is often described as broken and unfair. Although the new cap on lifetime care costs and more generous means testing will provide families with some reassurances, the measures may still fall short of what is required for many individuals to avoid selling their homes. The prospect of having to sell your home still seems very possible.

The current care costs can often extend well beyond the new cap of £86,000, however, those with modest assets may not be able to pay for their care up to this point. This could mean that those with high care requirements or long-term care needs will risk losing a large percentage of their wealth.

There is currently a system in place which allows those who require residential care to defer payment of care home fees so that their home does not have to be sold within their lifetime. However, the fees still need to be paid at some point, and for many families, it means a family home will need to be sold in the future.

In addition, it is not yet clear in these social care reforms what costs will contribute towards the £86,000 cap, but currently, at the moment the Government states that it will only be counting ‘personal care’ costs. This may mean that other large costs during care such as accommodation, energy and food will not count towards this cap, meaning many families will still be required to raise large sums.

Although there are further details to be announced about more support to help people live in their own homes for longer, it is not yet clear what the impact will be on potentially crippling care costs. While it is true that the new lifetime cap and increased means-testing limits will slow the pace at which an individual’s assets are used, it does not guarantee the preservation of assets beyond this cap, and families still need to proceed with caution.

Will Power – Protecting your estate with Care Fee Will Trusts

The Tory manifesto pledged that no one would have to sell their homes to cover the costs of care, although under these new plans the prospect still seems very possible as it appears the home may have to be sold on death. However, there are a variety of ways to protect your home, with Care Fee Will Trusts a great option. For example, if a couple made a Will that puts their ownership of each half of a property into a Trust in the event of either of their deaths, each share will not be left directly to the surviving partner. Care Fee Wills still protect against the loss of your home to pay for residential care costs.

Without a Trust, if the surviving partner needed care, their home would probably need to be sold to pay for the various costs. However, if a share of the home was already left into a Trust, it will be protected and kept safe for the couples’ beneficiaries, as the local authority will not be able to possess the property. Usually, the trustees will be other family members and the surviving partner can stay living in the house for as long as they wish.

In addition, organising a Lasting Power of Attorney is vital for many families, as it will allow a nominated person to handle the financial affairs of those who require care. 

As you can see from this article, planning for the future is essential if you are looking to protect your assets and ease the burden on your loved ones.

To find out more about our Care Fee Will Trusts and Lasting Power of Attorney services, please contact our experienced team today.

This article is for guidance only. Always seek professional advice.