Can I release equity from my estate to pay for care costs?
10th October 2007
Reader Writes:
With property prices having soared over the last few years, my mother is now in a position that she is asset rich but doesn’t have a lot of income or cash. We spoke to our bank who talked about equity release and commented that the benefit of equity release was that it also reduced her estate for the purposes of being calculated for care costs. Is this true?
Not quite. In reality if you release any equity from your property, you will still have that equity (the money) in your hand so the total value of your estate hasn’t changed.
You will be means tested on your ability to pay and if your estate is valued at £21,500 or more you may be expected to pay for your costs of care.
There are some exceptions to this if you are looking to protect your estate.
Basically your house will be disregarded for the first twelve weeks of care in any event. The property will also be disregarded if: the persons care needs are classed as temporary; an incapacitated relative is living in the property; a relative aged 60 or over is living in the property; the spouse of the person who requires care is still living in the property.
Equity release may have a part to play but the answer is a little more complex to make it work. In fact releasing equity from a property as above will not serve any purpose. If the property is disregarded as above you wouldn’t have any costs to pay but if you release equity from it, the cash is now at hand and under the means test would be included. What’s the point?
There are a few ideas for you to consider:
Ensure you receive whatever benefits you are entitled to. If care is being received at home or in a residential home it’s likely you will receive attendance allowance. You would have to be over 65 and prove you need help and assistance with day to day activities to receive this.
Nursing contribution is another. This is normally payable to those who receive care in a nursing home. In October of 2007 it changes to one band of payment of £101 per week.
If your medical needs are particularly difficult, you may also be eligible to have your nursing home costs met by the NHS. From 1st of October 2007 the criteria for this has also been made simpler.
If you did have to go into care and your other assets other than property were below the limit of £21,500, you could ask the local authority if you can take advantage of the deferred payment scheme where they take a charge on your property and your costs are repaid on death.
If you do hold investments, consider holding them in a life insurance bond. As it is a policy of insurance, it is disregarded from your overall assets. There are a couple of versions of this type of arrangement but ensure you use a life assurance bond as opposed to a capital redemption bond.
Change the ownership of your property from joint tenants to tenants in common. In legal terms, tenants in common doesn’t mean that you own half the house value. A tenancy in common can be a great way to reduce the value of your estate for care costs. When valuing the estate for means testing etc, the market value of the property is taken into account. If a husband and wife each have a tenancy in common, each tenancy is valued separately. What value would you place on a tenancy you were purchasing where another person had the same legal rights as you to live in the property? Zero.
Consider that as one of the first options available before planning any equity release or long term care plans.
For a free guide on Long term care or if you have a financial query, call 0845 230 9876 to speak to Peter McGahan or e-mail info@wwfp.net
Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
The above represents the personal opinions of Peter McGahan.
All information is based on our understanding of current tax practices, which are subject to change.
The value of shares and investments can go down as well as up.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
Reader Writes:
With property prices having soared over the last few years, my mother is now in a position that she is asset rich but doesn’t have a lot of income or cash. We spoke to our bank who talked about equity release and commented that the benefit of equity release was that it also reduced her estate for the purposes of being calculated for care costs. Is this true?
Not quite. In reality if you release any equity from your property, you will still have that equity (the money) in your hand so the total value of your estate hasn’t changed.
You will be means tested on your ability to pay and if your estate is valued at £21,500 or more you may be expected to pay for your costs of care.
There are some exceptions to this if you are looking to protect your estate.
Basically your house will be disregarded for the first twelve weeks of care in any event. The property will also be disregarded if: the persons care needs are classed as temporary; an incapacitated relative is living in the property; a relative aged 60 or over is living in the property; the spouse of the person who requires care is still living in the property.
Equity release may have a part to play but the answer is a little more complex to make it work. In fact releasing equity from a property as above will not serve any purpose. If the property is disregarded as above you wouldn’t have any costs to pay but if you release equity from it, the cash is now at hand and under the means test would be included. What’s the point?
There are a few ideas for you to consider:
Ensure you receive whatever benefits you are entitled to. If care is being received at home or in a residential home it’s likely you will receive attendance allowance. You would have to be over 65 and prove you need help and assistance with day to day activities to receive this.
Nursing contribution is another. This is normally payable to those who receive care in a nursing home. In October of 2007 it changes to one band of payment of £101 per week.
If your medical needs are particularly difficult, you may also be eligible to have your nursing home costs met by the NHS. From 1st of October 2007 the criteria for this has also been made simpler.
If you did have to go into care and your other assets other than property were below the limit of £21,500, you could ask the local authority if you can take advantage of the deferred payment scheme where they take a charge on your property and your costs are repaid on death.
If you do hold investments, consider holding them in a life insurance bond. As it is a policy of insurance, it is disregarded from your overall assets. There are a couple of versions of this type of arrangement but ensure you use a life assurance bond as opposed to a capital redemption bond.
Change the ownership of your property from joint tenants to tenants in common. In legal terms, tenants in common doesn’t mean that you own half the house value. A tenancy in common can be a great way to reduce the value of your estate for care costs. When valuing the estate for means testing etc, the market value of the property is taken into account. If a husband and wife each have a tenancy in common, each tenancy is valued separately. What value would you place on a tenancy you were purchasing where another person had the same legal rights as you to live in the property? Zero.
Consider that as one of the first options available before planning any equity release or long term care plans.
For a free guide on Long term care or if you have a financial query, call 0845 230 9876 to speak to Peter McGahan or e-mail info@wwfp.net
Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
The above represents the personal opinions of Peter McGahan.
All information is based on our understanding of current tax practices, which are subject to change.
The value of shares and investments can go down as well as up.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
'Your home may be repossessed if you do not keep up repayments on your mortgage'.
'Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. Worldwide is entered on the FSA register www.fsa.gov.uk/register/ under reference 440668
Registered office; The Old Carriage Works, Moresk Road, Truro, Cornwall, TR1 1DG. Registered in England and Wales No. 3533548. Contact info@wwfp.net or 01872 222 422
© 2007 Worldwide Financial Planning - this site is intended for UK investors only
By clicking on any of the external links within this website you will leave the regulatory site of Worldwide Financial Planning Ltd. Worldwide Financial Planning Ltd are not responsible for the accuracy of the information contained within the linked sites.'
'Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. Worldwide is entered on the FSA register www.fsa.gov.uk/register/ under reference 440668
Registered office; The Old Carriage Works, Moresk Road, Truro, Cornwall, TR1 1DG. Registered in England and Wales No. 3533548. Contact info@wwfp.net or 01872 222 422
© 2007 Worldwide Financial Planning - this site is intended for UK investors only
By clicking on any of the external links within this website you will leave the regulatory site of Worldwide Financial Planning Ltd. Worldwide Financial Planning Ltd are not responsible for the accuracy of the information contained within the linked sites.'