How can we manage the cost of my mother's care?
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My mother is in her nineties and is struggling to look after herself, so we’ve decided that she needs to move into residential care. She won’t qualify for state support as she owns her house and has a portfolio of investments. She is worried that if she lives in care there won’t be much money left for me and my two brothers when she dies. She does have a full state pension and a small personal pension, but that won’t be enough. How can we manage the cost of her care?
Matthew Hinchliffe of Smith & Pinching responds:
Covering the cost of care for a loved one is something that worries many families. There are a number of ways in which you might manage your mother’s assets and investments to provide the additional income she will need. I strongly recommend that you discuss this with an independent financial adviser to explore the available options and work out what will be the most suitable for both her and the wider family. However, here are some thoughts of what might be possible, and it may be that a combination of these will work in your case.
The first option might be to sell her home and invest the proceeds to produce income. However, there may be tax implications for any income earned. If she wants to retain the house, it may be feasible to rent it out to generate income, but please remember that any rent your mother receives would count as income for tax purposes.
Secondly, it may be possible to adjust her existing investment portfolio to produce income rather than investment growth to provide a top-up to her existing pensions. If necessary, perhaps some of her investment portfolio could be sold to generate capital, but this may produce a capital gains tax bill and would erode her estate.
The third option to consider might be to change the income level she is drawing from her personal pension. The viability of this option will largely depend on what pension income arrangement she has currently and the value of any remaining pension fund that can be accessed flexibly.
A fourth solution would be to purchase a care fees annuity – also known as an immediate care plan – which would provide a guaranteed top-up to her income for life, however long she lives. Although this would involve an initial outlay, it would limit the potential erosion of her estate. This can be particularly tax-efficient as payments are generally made directly to the care provider and would not be counted as your mother’s income for tax purposes.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk