Getting the Advice Right - Elderly Client Adviser

Feature

posted 1 Jan 1998 in Volume 3 Issue 2

Getting the Advice Right

The need to plan for old age means that people are increasingly looking to professionals for guidance.
In this article, Philip Spiers demonstrates the importance of giving the right advice, by reference to several Cast Studies where the initial advice given was not appropriate.

The care needs of our older population have never been written about so much as they are today by the popular press. But where do we read about it? Not from the health or social services correspondents but in the personal finance columns. Why? Is it because we care less about care services and standards than about care costs? This has undoubtedly led to the financial services industry identifying a potentially enormous market in the provision of advice for those either planning to meet future care costs or those with an immediate need for care.

A problem arises here in that this sector of the community require very specialist advice. It is a sad fact that many of the problems surrounding the provision of care are money led and in many cases would not arise if appropriate advice had been sought and given at the outset.

For the vast majority of older people the fundamental aim is to meet their care costs for life, whilst still leaving as much of their assets as possible for their family to inherit. This can be achieved in many circumstances and you have to question how much of a story would be left for the sensation seeking press had more older people received and acted upon appropriate advice at an appropriate time. It is imperative that, when providing advice on planning for future care or at the point of need, the adviser has a good knowledge and understanding of our "care system" and how local authority charging procedures, DSS benefits and legal matters affect the advice on offer. I continually encounter situations where quite inappropriate financial advice has been given by otherwise very qualified advisers. In normal circumstances the advice would be good except for one prerequisite, the circumstances of the client involved the provision of care.

The following case studies illustrate how through a lack of knowledge costly mistakes can be made. These are actual cases. Without exception they were all advised by very well qualified professional advisers. A range of financial products are involved.

CASE STUDY 1 -Annuities

Female aged 84 years. Capital available £3,000 savings plus £60,000 from sales of property. Income basic state pension £62.70 pw/£271 pcm. Assessed as needing nursing home care - life expectancy 2 years. Nursing home fees £15,600 per annum - property took 3 months to sell.

Inappropriate advice given

Shortfall in fees measured to be £15,600 less £3,260 (£271x12)= £12,340. Capital therefore used to purchase a non-capital protected, non-increasing annuity, purchase price £59159 producing £12,340 per annum net. Please refer to Table 1.

The shortfall in fee increases would not be met from DSS income support because the annuity income was in excess of Income Support applicable amounts.

The family would have to pay any personal expenses the resident incurred.

Death occurred during year two and, not only would all the resident's capital of £63K have been lost to the estate, the family would have owed the nursing home £682 and been out of pocket by £1,391 personal expenses paid.

Appropriate advice given

Family advised to take an enduring power of attorney over client's affairs as it is likely that she will be unable to cope as she becomes more frail. A claim was submitted for full rate attendance allowance - increasing her income by £49.50 per week/£2,574 per annum. A further claim was submitted for DSS income support whilst the property was on the market. Including Severe Disability premium, personal allowance, Higher Pensioner Premium and Residential Accommodation Allowance. Net IS benefits totalled a further £106.15 per week (£5,519.80 pa). Allow for clients spending money £14.42 per week (£750 pa) to cover personal needs.

CASE STUDY 2 - Investment Bonds

Retired couple - husband fit and healthy, wife beginning to show signs of dementia. Their concern is what would happen to their savings should the wife need care in the future.

Inappropriate advice given and taken

Investment of £100,000 into a joint life investment bond in Trust, because it would be treated as a life insurance policy and disregarded in any means test by the Local Authority or DSS and outside the estate.

The wife, in fact, deteriorated in health and, finally suffering from advanced Altzheimers Disease, received domicilary care services from the local authority Social Services Department. As time progressed, the husband needed to withdraw some capital from the bond to meet household expenses, however, his wife was unable to sign a withdrawal notice and, without an EPA, he could not sign on her behalf. Access to the funds was denied pending Court of Protection approval.

Investment bonds are not necessarily disregarded for DSS Income support or LA Charging Procedures

In the meantime, SSD and the DSS discovered the existence of the capital potentially available to the wife and ceased financial support for the wife's care costs and sent a backdated bill for in excess of £6,000 to cover care received to date.

The husband is left to deal with the complicated and costly procedure of the Court of Protection, increasing debt with the local authority and in financial difficulty. This case is still being unravelled and the final outcome is not yet known. The investment however is doing very well.

Appropriate Advice

The claimant should have been advised to invest in his name only, claim attendance allowance for his wife and disclose the capital to the LA when care was required. If income is required from the capital to live on or supplement pension income a 'waiver' of care charges can be applied for.

CASE STUDY 3 - Commuting a Pension

Husband accepting retirement - sought advice on commuting his pension. He lived alone although still married to his wife who was a resident in a nursing home the fees for which were funded by the DSS Income Support 'Preserved Rights' (Pre NHCCA April 1993 entrant)

Inappropriate Advice given

The husband was advised to take a reduced pension so that , should he pre-decease his wife, she would receive an income to cover her personal expenses over and above the cost of her care. Incorrect - The effect on the wife receiving a widow's pension would be to reduce her preserved rights to Income Support pound for pound, consequently not benefiting from the income in any way. The husband has ended up with an unnecessarily reduced pension.

Appropriate advice

Should have been to commute his tax free cash sum into a discretionary trust to purchase items required by the wife. Being the provision of "items" and being discretionary the capital and income would be disregarded and not affect the Income support funding for the nursing home fees. Should his wife predecease him then the capital would be available for other purposes.

CASE STUDY 4 - Long Term Care Insurance

A wealthy lady wished to ensure her financially poor sister would receive care over and above what the state could provide. She wanted long term care insurance to top up the basic Local Authority level of nursing or residential care funding to that which she thought would be more suitable for her sister.

Inappropriate advice given

She was offered an LTC policy in her sister's name, covering an amount equal to the difference between what the Local Authority would pay and the cost of better quality accommodation.

The consequences of a claim by her sister is that the proceeds from the policy would be counted in a LA/DSS means test for basic accommodation and not be available as intended "as a third party contribution" to pay for the difference between LA support and better accommodation.

Appropriate advice

Would have been to set up the policy as belonging to the wealthy lady who funds the premiums for the benefit of her sister. In the event of a claim, the policy proceeds would then be admissible as a third party top up for more expensive accommodation as permitted through the Local Authority charging procedures and DSS Income Support regulations.

Philip Spiers, Nursing Homes Fees Agency