What are the costs of long-term care and how can you prepare for them?

Planning for long-term care is an important but often overlooked aspect of financial planning.

If you underestimate the costs involved or don’t adequately prepare, you may end up using a large portion of your estate to cover care expenses. This could potentially affect your partner’s financial stability or reduce the inheritance you leave for your beneficiaries.

The Labour Party recently scrapped proposed care reforms that would have capped lifetime care costs and raised the asset threshold for state-funded support. While a government review is scheduled for 2028, the current system remains unchanged, which means there is still no cap on the total amount you can pay for care.

Even if future reforms are introduced, it’s still likely that a substantial portion of your estate will be required to cover care costs. So, with this in mind, it’s a good idea to adjust your financial plan accordingly.

Read on to explore how you can better prepare for the costs of care.

Care costs can be significant

The NHS reports that the current average care costs in England are:

• £20 an hour for home care

• £700 a week for a room in a residential home that offers assisted living

• £850 a week for a room in a nursing home that offers 24-hour care

• £800 – £1,600 a week for a live-in carer, depending on the level of care you need.

It’s important to note that these are only averages, and the costs can be significantly higher depending on where you live.

As you can see, if you or your partner require care, these costs can quickly add up. For example, a year in a nursing home could easily exceed £44,000.

Currently, you won’t qualify for any local council support with paying care costs if:

• Your savings exceed £23,250 (the “upper capital limit”)

• You own a property (if moving into a care home).

The “lower capital limit” is £14,250 – below this, you won’t need to use your assets to fund care. If your assets fall between the upper and lower capital limits, you may receive some financial assistance on a sliding scale.

The planned reforms would have increased these limits and capped lifetime care costs, but they have now been scrapped. While there is another review forthcoming, the changes remain unknown.

This means your estate will continue to be used to fund care until your assets drop below £23,250. This could involve using savings, selling investments, or releasing equity from your home.

So, without careful planning, care costs could significantly reduce the value of your estate, leaving less for your loved ones.

A financial planner can help you prepare for the costs of long-term care

There are several ways a financial planner can help you prepare for care costs and ensure your estate is best preserved.

Evaluating immediate needs annuities

An immediate needs annuity provides lifelong monthly payments to your care provider in exchange for a single upfront fee. Many are index-linked, meaning they increase with the cost of living.

By making a one-off payment, you can be clear on just how much of your estate will go toward care. This can help preserve your assets and offer peace of mind that you know exactly how much will be left for your loved ones.

The cost of an immediate needs annuity depends on factors such as your age, income, and health.

A financial planner can help you compare available annuities, find a suitable option, and determine whether this approach is likely to be more cost-effective for you than funding care directly.

Using cashflow modelling

A financial planner can use cashflow modelling to map out different care cost scenarios, helping you make plans for the future effectively.

This process considers factors such as your current and projected expenses, savings, investments, inflation, and total assets.

By gaining insight into your future spending patterns, income, and potential growth, you can feel confident about covering care costs or adjusting your budget to ensure you're financially prepared.

Exploring asset gifting

When planning for care costs, it's important to consider how much of your estate will remain for your beneficiaries. As you read earlier, if you spend years in care, you may need to release equity from your property, which could mean there’s little left to pass on.

Gifting assets while you’re still alive can help reduce the size of your estate, ensuring more goes to your loved ones rather than care costs. It may also lower potential Inheritance Tax (IHT) liabilities.

A financial planner can help you assess how gifting assets could benefit your beneficiaries while preserving as much of your estate as possible.

Offering advice on your Lasting Power of Attorney

A property and financial affairs Lasting Power of Attorney (LPA) allows you to appoint someone to manage your finances if you become unable to do so or choose to step back from the responsibility.

Registering an LPA in advance ensures your finances are handled according to your wishes, providing you with peace of mind that your wealth will be well looked after.

A financial planner can assist with setting up an LPA and work with your appointed representative to adjust your financial plan as your circumstances change.

To speak to a financial planner, get in touch.

Email info@mlpwealth.co.uk or call us on 020 8296 1799.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.