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Long term care insurance planning

In this article I explore a concern that increasingly affects everyone as we get older. The question is how we ensure a standard of health and care without spending the hard earned capital we intend to leave for our family to enjoy.

In the first instance we understand that holding onto to our money until the day we die will bring forth a large inheritance tax or IHT bill of up to 40%. If you do not want to donate up to 40% of your estate to the taxman, you had better start planning.

For many of us, we want the bulk to be left to our family and the common approach is simply gifting during our lifetime and ideally more than 7 years before we die to reduce the amount of capital remaining in your estate on death.

Simply leaving the money to pass to your surviving spouse only compunds the problem for your partner.

The problem with gifting is you are left with a reducing amount of wealth at a time of increasingly poor health.

You cannot rely on the State to pay for your long term care unless you are really poor. Both Malta and the UK means test your circumstance and typically your entire assets including your home must total less than £10,000 to qualify for state care. Any more than this and you start paying for your care.

The cost of long term care is significant and ranges from £200 pounds a week for 3 hours help a day to around £460 pounds a week for a single room in a care home. Over 7 years this equals £73,000 to £167,000.

A typical long-term care policy premium taken out by a 65 year old woman for a benefit of £1,000 per month for life would cost less than £20,000.

N.B. These figures have been taken from a study conducted by HM Treasury and The Royal Commission on Long Term Care for the Elderly. The report is available at the HM Treasury website.

Solution

As with every tax or finance related problem there is some degree of relief. My advice comes in two parts:

  1. Start your tax planning discussions early and with appropriately qualified advisers to ensure your estate minimises the amount of Inheritance Tax you pay while still maintaining your standard of living and maximising the amount of capital you can leave for your family.

  2. Consider a long term care policy or annuity to ensure you receive a regular monthly sum to cover your long term care costs.

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