3rd January 2014
With most of us living for longer, it is concerning that very few people are making plans to pay for future long term care costs. Patrick Connolly, a certified financial planner at independent financial advisers Chase de Vere looks at the options available…
We see this scenario at first hand when speaking with prospective clients. Most aren’t planning at all and of those who are, or those forced to make decisions, many do not fully understand the options available to them and so could be leaving themselves and their families open to problems in the future.
Three common problems are:
Not including family members
Many people don’t feel comfortable discussing their finances or their health with their families. As a result family members are often not involved in the decision making process, even though they might be directly affected.
Even the strongest of family relationships can be stretched if people feel that the wrong decisions have been made. There are an ever increasing number of long term care decisions challenged by the courts as a result of disputes between families.
By involving affected family members at outset, all relevant parties can participate in the decision making process and understand why specific decisions have been made and so they are less likely to challenge them in the future.
The wrong mortality assumptions
As a nation we are living longer. However, in our experience, many people still considerably underestimate how long they will be alive. This causes problems when making financial planning decisions, especially regarding the amount of risk that is taken.
Those who live for longer than they had originally expected are more likely to deplete their assets, which will either affect their standard of living in the future or the amount they are able to pass to dependants or future generations.
While many people are keen to gift assets which they don’t need or they don’t want to hold in their estate, getting it wrong can cause significant problems both while they are alive and upon their death.
Even gifts to a spouse, which wouldn’t affect potential inheritance tax liabilities, can accidentally be caught up in the deliberate deprivation rules if somebody needs care. Getting it wrong can affect the lifestyle of both the individual themselves, their spouse or other dependants.
The long term care funding rules are complex. People often have to consider what to do with existing assets and properties, the availability of local authority funding, mortality rates and changing legislation. Getting it wrong can mean the individual potentially suffering from a poorer quality of life and/or their capital being eroded quickly to the detriment of both themselves and their dependants and beneficiaries.
For many people it is sensible to take independent financial advice, either when planning for future care, when they know care will be required or even for somebody already in care to assess whether their current funding methods are the most suitable.