What's the best way of paying for care?

26 March 2012


My wife and I are 62 years old, with two grown-up children. Recently, we were approached by an adviser from a company offering to set up asset protection trusts to protect the family home and other assets should we need to pay for long-term care in the future. He sounds very knowledgeable but the cost of trusts for myself and my wife is £3,000.Do you think it is a good idea to let him set these up for us and, if so, should I shop around a couple more solicitors first?


I'm afraid I wouldn't recommend an asset protection trust for a number of reasons.

First, if there is any indication at all in the supporting documentation that the trust has been set up to protect an estate from care fees then the Local Authority could treat the transaction as ‘deliberate deprivation' of assets and treat you as still owning the assets.

Also, depending on the wording of the trust, you could potentially lose control of the assets you put into the trust and may not be able to use them in later life to fund your retirement.

If the trust does work successfully, you could be left relying on Local Authority-funded care, in which case you would have no choice over where that care is provided, whether you have a shared room, or enjoy three or five-star care, unless your family is going to pay a top-up to the traditionally low Local Authority contribution.

I would steer clear of a trust unless you are happy to treat the cost of setting it up as a pure gamble with no guarantee of success. A better option may well be to purchase a care fees annuity contract (see below) if care is ever needed.

What is a care fees annuity contract?

A care fees annuity contract can be purchased at the point when you or a relative needs to go into a care home. Much like a standard annuity, you pay a lump sum to an annuity provider which then pays a regular income out to the care home to cover the cost of care for the rest of the elderly person's life.

As this income goes directly to the care home it will not affect any means-tested state benefi ts the care-home resident receives.

The income paid to the care home can be fixed, increase annually by a fixed percentage or rise in line with inflation depending on the type you choose. And if you move care homes, the annuity moves with you.

They are "an affordable option for a significant proportion of selffunders", says Chris Horlick, managing director of care at annuity provider Partnership. "They provide peace of mind for residents and their families."

If you are considering buying a care fees annuity it is important that you get financial advice as the costs can vary hugely between providers.