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Weigh Up the Alternatives First – Equity Release Isn’t Always the Answer to Funding Long Term Care Costs

Thursday, January 1st, 2015

Long Term Care SolutionsWith long term care becoming increasingly topical, Equity Release Supermarket are encountering many enquiries where children & attorneys are considering equity release as a possible solution to solving this ageing dilemma. However, as a company we do not automatically assume that equity release is the only answer; there are more alternatives.

 

It is therefore always advisable to seek long term care advice from a specialist who can advise on all aspects of retirement planning to ensure all avenues are explored. This would include claiming any state benefits due, retirement annuities, care fees plans & equity release schemes.

 

The following live case study illustrates how one of my clients was in such a situation & was looking to release equity from their main residence. It explains how I researched & recommended the best long term care plan for their particular needs after exploring & discussing with them all possible solutions…

 

Case Background

I was contacted by a lady whose father – Peter was suffering from Alzheimers disease. Her mother Mary, who was in her 80’s, lived in the bungalow that they jointly owned, but because she suffered from mobility problems, she was unable to care for Peter. She had reluctantly made the difficult decision that Peter would be better cared for in a specialist Care Home.

 

Funding Long Term Care Shortfalls

At the time I spoke to Mary and her daughter, Peter had been living in a very nice Care Home for two years and was settled there. He was aged 86 and the fees for his care were £40,904 per year, the amount of his income that could be used to help fund this cost was £13,345 per year.

The shortfall between Peter’s income and the cost of his care therefore amounted to £27,559 and this shortfall was being paid from the capital that Peter and Mary had in their savings. At the time I spoke with the family, their savings totalled £135,000.

 

Although this amount would seem to be sufficient to fund the present shortfall in the cost of Peters care for nearly another five years, anything that Mary might need outside her normal day to day expenditure would also have to come out of it. This therefore left them in a financial dilemma that needed considering now, before the situation worsened & a long term care plan of action was to be put in place immediately.

 

The bungalow, for instance, badly needed decorating and Mary had not had a holiday for nearly five years. There was also the fact that Long Term Care Fees normally increase by between 3% and 5% per year. All of this needed to be met from this capital and Mary had started to worry that all their capital would be used up very soon, this worry was beginning to affect her health since she was not sleeping very well.

 

Is Equity Release the Solution?

Mary and her daughter had initially thought that taking out an equity release plan may be the only option open to them and this was when they contacted me for advice. They felt that by releasing equity from the property now, instead of using the savings would help preserve the capital into the future. However, after discussing the effect of roll-up interest & the fact that other retirement solutions existed they were prepared to sit down with me & conduct a thorough factfind exercise so I could fully analyse their situation.

 

Benefits of Seeking Independent Long Term Care Advice

Being a SOLLA accredited independent equity release adviser, I have the benefit of being FCA authorised to specialise in long term care, equity release plans, investments & annuities. Whereas many equity release advisers can only provide advice on equity release, whenever ANY advice is being given with regards to using it to solve long term care planning, it should always be referred to a long term care specialist such as myself who has be trained to provide guidance on such matters. We can consider ALL options available, not just equity release which may not always be the best solution.

 

The Long Term Care Solutions

After making an assessment of their situation I looked at the options that were available to them.

 

  1. The first option we looked at was to continue to meet the shortfall from the savings of £135,000. This meant that after annual increases in the cost of Peters care and looking after any needs that Mary might have, such as decorating and holidays, the capital would probably last for about another three or four years. After this period they would be reliant on Local Authority funding. Because the cost of the Care Home that Peter was in was more expensive than the Local Authority funding level, this may have meant Peter moving to a cheaper Care Home. Because he was settled and happy where he was, and the family was happy with the care he was receiving, they did not want this to happen.
  1. The second option was to look at investing the capital in order to obtain an income from the return. An optimistic return on the capital would be about 4% and this would provide an income of £5,400 per year. This would obviously not meet the shortfall of £27,559 and not entirely solve the long term care cost shortfall.
  1. The third option was to purchase a ‘Care Fees Plan’, otherwise known as an Immediate Needs Annuity. After obtaining the necessary medical reports from Peters Care Home and his GP, we received illustrations of the cost of these plans from the relevant providers. By investing a capital sum with the annuity provider, they would then provide a lifetime income payable to either the planholder or care home to cover care fees due.

 

The results were very pleasing. For a lump sum premium of £106,000 a Care Fees Plan could be purchased that would provide Peter with an income of £27,599 per annum for the rest of his life. The income would also rise by 5% each year in order to help cover any increases in the cost of his care. Instead of the income being paid to Peter so his Attorney could then pay his Long Term Care Fees, it was arranged to be paid directly to the Care Home. Arranged in this way, it gave the added bonus that the income would be paid tax free, thereby going further towards meeting the care costs payable.

 

The outcome of funding the cost of Peters care in this way meant that:

  • The cost of Peters care would be met for the rest of his life, regardless of how long that was.
  • The income of £27,599 would increase by 5% compound each year.
  • £29,000 of their capital had been protected for Marys benefit.
  • It had safeguarded the family home to be passed to their daughter.
  • The family had been provided with peace of mind.
  • Equity release is still an option if necessary in the future should circumstances dictate.

 

If you wish to discuss any aspects of this case study or need long term care advice from a SOLLA accredited adviser, please either email me – peter@equityreleasesupermarket.co.uk or telephone 07828 179707. I look forward to hearing from you.

How Equity Release and Power of Attorney Can Work In Tandem

Thursday, December 11th, 2014

Equity Release Using an Enduring Power of AttorneyHere at Equity Release Supermarket we occasional experience children and attorney’s contacting us asking whether they can take out equity release on behalf of someone they hold an Enduring or Lasting Power of Attorney over? The answer is yes.

 

However, there are systems in place from equity release companies to protect the homeowner and ensure that any release of equity is being utilised for the correct reasons and correct legally. Looking after someone else’s affairs financially is a big responsibility, not only in looking after the homeowner, but also the responsibility to their beneficiaries.

 

Being an independent equity release adviser with Equity Release Supermarket, I recently dealt with an Enduring Power of Attorney case which was being utilised to meet ongoing long term care costs that were being provided to enable the homeowner to remain in her home. The following case study illustrates the steps involved in helping the attorney take equity release on behalf of someone they were looking after, due to the onset of Alzheimer’s and the inability for the homeowner to contract themselves.

 

 

Equity Release & Power of Attorney Case Study

Initially, I had a call from a solicitor who held an Enduring Power of Attorney over a frail lady in her late 80’s. The lady had nominated the solicitor to be Power of Attorney over 15 years ago as the only family she had was a son living abroad. The solicitor contacted me as the lady had now developed Alzheimer’s and needed 24 hours a day care and was concerned that the lady was about to lose her home and be forced into a care home.

 

The homeowner was unable to live on her own and the cost of paying for full time carers to stay in the property was costing over £2,500 per month. Due to the ongoing nature of these costs and the fact her income was insufficient to cover much of these expenses, her savings were rapidly reducing and apart from the bungalow, she had no other assets. The attorney, who was also the solicitor had looked into all other options including help from the state, alas none were available.

 

Additionally, moving home was not a viable option due to the lady’s poor health and she did not want the upset of leaving her bungalow of 20 years and she still had something recognisable to her which was her Labrador. Therefore, with only £15,000 left in savings, time was running out to find a solution as to how to finance the remainder of her years.

 

The Equity Release Advice Process

I basically dealt with the solicitor as if they were my client taking out the equity release scheme. After taking suitable identification for both the homeowner & the attorney I was able to gather the background to the older lady’s finances. This gave me an insight as to how much was required monthly in order to meet the ongoing long term care costs. My job then was find a suitable equity release scheme that would fulfil the needs of maintaining the payments for the long term care for the first 12 months and then beyond.

 

 

After conducting my initial equity release research I advised that a guaranteed lifetime mortgage drawdown schLiverpool Victoria Equity Releaseeme was the best option. One particular lifetime mortgage meeting these requirements was from Liverpool Victoria. LV= offer an equity release scheme with a guaranteed drawdown facility, so no matter what happens in the next 15 years money can still be taken from the creation of a cash reserve facility, to guarantee money for future care costs would be available.

 

 

This is the advantage of taking completely independent equity release advice as we can research the whole of the marketplace to find the correct scheme to fit with clients individual circumstances. The LV= Flexible Lifetime Mortgage scheme ticked all the right boxes to meet the Attorney’s requirements as a concern of hers was that money would be need to be guaranteed in the future to guarantee the future of her care.

 

The next step to save time & possible heartbreak later was to check the legal paperwork of the Enduring Power of Attorney was suitable from the lenders perspective. Therefore, I sent a copy of the Enduring Power of Attorney document to LV= legal department who checked over & made sure it was registered with the Court of Protection. It was & met their requirements which enabled me to pass on the good news to the solicitor which gave the green light to continue the process to application.

 

Not only were LV= happy that the Power of Attorney was registered with the court of protection, but also that there was no conflict of interest between the attorney and the homeowner with the Alzheimer’s. The only other concern for LV= was that there was full time carers living in the property, but who rotated their shifts on a weekly basis. The carers were employed by an agency and after seeing a copy of the agency employment agreement, LV= were happy to proceed as long as the agency would sign a letter to state that upon the death of the homeowner they would cease to remain in the property. This they had no issue agreeing to.

 

Why Should Equity Release Clients Take out a Power of Attorney?

I always recommend Lasting Power of Attorney to my clients (changed from Enduring Power of Attorney in 2007) as you can nominate someone you trust; family member, friend or solicitor to make decisions on your behalf if needed in the future. However, most people think they will never need it and do not want to think about it is reassuring to know as in the above case that your best interests are being looked after by someone that you trust.

 

There are two elements to this in England and Wales – the Property and Financial Affairs & the Health and Welfare. This enables attorneys to provide cover for permanent or temporary control of finances and also medical treatment consent. The attorney also has the power to make the decision as to whether the homeowner should be taken into care, or stay in own home & be looked after there.

 

It is not compulsory with equity release, but is recommended that a Lasting Power of Attorney (LPA) is taken out, so if you get to a stage either through Alzheimer’s or any other reason if you cannot make financial or medical decisions then someone you trust can be nominated on your behalf to make decisions for you. LPA’s can even be used on a temporary basis where then can be utilised if a situation arises and you are unable to sign documents due to a temporary event such as illness, holiday or even broken wrist!

 

Summary

In the above equity release case the advantage of having Power of Attorney in place ultimately enabled the lady to stay in her own home in the first instance and with a guaranteed lifetime mortgage drawdown scheme from LV= it enabled her to stay in her own home for the foreseeable future. This would be via an initial lump sum covering the first 12 months costs, with the option if still required a cash drawdown facility, sufficient to cover a further two years costs, subject to any changes.

 

My name is Glen Pike & I am a specialist in equity release case studies such as this involving Power of Attorneys.

 

If you have a similar decision to make on behalf of a parent, or someone close to you and would like a free initial equity release consultation, please contact me on 07510 835613 or email glen@equityreleasesupermarket.co.uk

 
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