Client story: Finding financial peace of mind with an elderly parent in long-term care

When an elderly relative needs long-term care, it can be a difficult and stressful time for all concerned.

And when you’re not sure how that care is going to be paid for, or how it might affect the family finances, it’s likely to add to the burden on everyone’s shoulders.

This was the situation that Connor* and his mother Sarah* found themselves in. Sarah was 95 at the time, and they had come to the conclusion that she was no longer coping with living on her own at home.

Fortunately, they were able to secure a place for Sarah at an excellent care home with round-the-clock nursing care, but the fees of £72,800 per year were way above her annual income.

To meet the shortfall, Connor, having been granted power of attorney by his mother, had arranged to sell her house in south-west London for just over £800,000.

However, he was extremely concerned about how long the proceeds would last and how best to structure the family’s finances to ensure everything was in good shape for both the present and the future.

The situation, admits Connor, was troubling.

“When she was in her own home, Mum was getting more and more anxious about who her carers were going to be, and how this and that was going to happen,” he says.

“It was becoming too great a challenge for her, and it was too much on me. But she’s a very strong personality who doesn't have any illusions about her capacities, so she recognised that moving to a care home was the best way forward.”

Paying care-home fees and reducing Inheritance Tax

It was at this time that Connor was introduced to Lisa, a Partner at St. James’s Place who specialises in advising people in later life.

Lisa spent some time talking through the situation with Connor and his two sisters (one of whom is also an attorney for their mother), to fully understand the family’s wishes. “It was clear that their number-one priority was Sarah and her care fees being paid for the rest of her life,” she says.

In order to make sure that would happen, Lisa’s first step was to arrange an immediate-needs annuity. This is an agreement where, in return for an upfront premium, an insurance company will pay a person’s care-home fees for the rest of their life.

In Sarah's case, Lisa secured a deal where the insurer would pay £63,241 per year tax free (the approximate difference between the annual care-home fees and Sarah’s income) for a one-off premium of £179,000 - this was calculated based on annuity rates at the time which are subject to change.   

More importantly, however, it meant that Sarah, Connor and his sisters would not have to worry about Sarah's estate being further depleted by the cost of Sarah's care-home fees.

And there was one added advantage to the immediate-needs annuity. It also helped to reduce a substantial future Inheritance Tax liability – which was likely to be around £300,000 on Sarah’s estate of just over £1.2 million.

The premium of £179,000 resulted in an Inheritance Tax saving of £71,600. This meant that the true cost to Sarah’s estate was £107,400 meaning that Sarah would recoup the cost after just under two years. Sarah and her family felt that this provided great value.

Afterwards, Sarah still had a lot of cash left, which would have been likely to lose its value over time in real terms if it were left in a savings account.

With this in mind, Lisa arranged to put the money into a mixture of Stocks & Shares ISAs, Unit Trusts that feed into the ISAs – which helps to maximise Sarah’s dividend tax allowances – and Investment Bonds. “With these investments, we’re looking at regenerating some of the money that was used to buy the annuity,” she says.

Throughout the entire process, Lisa was sure to consult regularly with Connor and his sisters, as well as ascertaining that Sarah’s wishes were being followed, since Connor also discussed every step with his mother.

“What’s more,” says Lisa, “Sarah had done some Inheritance Tax planning previously, as she had a small Investment Bond that was within trust [and therefore would be exempt from Inheritance Tax]. So we could demonstrate that any actions that Connor was taking as Sarah’s attorney, in order to reduce her Inheritance Tax liability, were something Sarah would have done herself.”

Creating confidence and trust

Connor is delighted with the work that Lisa has done for the family and feels great peace of mind that he no longer has to worry about the situation.

“Moving Mum to a care home was a difficult thing to do,” he says. “But we were very lucky to meet Lisa, who was able to arrange our affairs in such a way that is entirely positive. Every action that Lisa has taken feels well judged and we have enormous confidence that she has planned not just for the rest of Mum’s life, but also for what happens after it ends.”

The cornerstone of this, he adds, is the personal trust that has built up between Lisa and the family. “In all these things, we have enormous confidence in Lisa. She really takes the time to explain everything fully to me and my sisters. Financial advice of this kind isn’t exploitative or avaricious – it’s absolutely necessary to put these financial structures in place.”

Sarah, who remains in good health, is also relieved to know that everything has been taken care of.

“She has no concerns now,” says Connor. “And being settled in her care home has completely rejuvenated my relationship with her. Now, instead of having to worry about who’s going to get her dinner or change her clothes, we can talk about more interesting things. And you need to be on top form when you visit, as she’ll want to talk about big topics, such as religion or French literature!”

At the same time, Lisa is thrilled to have been able to use her expertise to help another client. “I love this kind of work and wouldn’t do anything else,” she says. “The satisfaction I get from seeing such a positive impact on people’s lives is just wonderful. I think of each of my clients as a team, and this is ‘Team Sarah’: I look after the financial side of things, the family looks after the care side, and it all comes together.”

At their request, the family's name has been changed in order to protect their identity. The advice given was provided after a full evaluation of their specific needs, circumstances and requirements and was correct at the time it was given. The solutions provided may not be suitable for everyone and the information provided here does not constitute advice.

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