Over the years the press has been full of heart-rending stories of families forced to sell their relative’s home to pay for care. Some have done so quite needlessly, unaware of the options available in terms of funding their relative’s care. This article tells you how to avoid these mistakes.
Many people automatically assume that they’ll have to sell their house to pay for long-term care. However, that’s not necessarily the case.
There’s a lot of misinformation circulating about this issue, and it causes a great deal of confusion and distress for families.
When the time comes for a relative to move into a care home, the first question that comes to mind is how will their care be funded? Sometimes, the need to place a relative into a care home is foreseeable as you watch them become more frail over a period of time while their care needs become more challenging. However, quite often, the need to find a care home happens unexpectedly, perhaps following hospital admission after a sudden stroke, accident or fall. The shift in circumstances or care needs, can see an individual go from living (independently) in their own home to requiring round-the-clock, 24 hour care. We recommend reading our book “How To Choose a Care Home”.
Being a resident in a care home comes with a cost.
Many people assume that if you have some savings or you own a property, you are expected to pay for your own care. This is not necessarily the case.
There are two types of nursing care funding:
- Fully-funded NHS care (NHS Continuing Healthcare) covers 100% of care fees and is paid by the NHS if your relative has a ‘Primary Health Need’. This means that their primary need for care is a health need – as opposed to a social care need. Social care is often described as ‘activities of daily living’, such as help with feeding, washing, hygiene and mobility.
If your relative doesn’t qualify for NHS Continuing Healthcare Funding, they should automatically be assessed for FNC.
- Funded Nursing Care (FNC) is a weekly allowance (currently £180.31) paid by the Clinical Commissioning Group directly to the care home, as a contribution towards the cost of your relative’s nursing care needs that are provided by a registered nurse, employed by the care home. For more information, read out blog: Don’t Miss Out On Funded Nursing Care!
If your relative is assessed as being ineligible for NHS Continuing Healthcare Funding and FNC, then they should be passed over to their Local Authority to be assessed for social care funding. Social care funding is means-tested (NHS Continuing Healthcare is not), so if your relative has over £23,250 in savings and capital, they will have to pay for their own care ie become ‘self-funding’ and have to meet the full cost of care themselves.
However, many of the families who contact us indicate that they have not received any accurate information about this from the health and social care authorities and are steered towards self-funding their care from the outset. NHS Continuing Healthcare is never mentioned.
If your relative has health needs, they should ALWAYS be assessed for NHS Continuing Healthcare BEFORE they’re assessed for FNC and means-tested social care.
For more information, read our blog: ‘Primary health need’ made simple – what does it really mean?
Here are some available funding options which you need to know:
1. Following discharge from hospital into a care home:
With effect from 1 September 2020, the Government (via the NHS) has put in place emergency funding to pay for the first 6 weeks of care. [This was reduced to 4 weeks from the 1 July 2021]. This period is designed to give families peace of mind whilst the NHS carry out an assessment of their care needs.
If an assessment for CHC is not done within this period, the NHS will have to make ongoing arrangements to fund the care fees until it is carried out and the outcome is notified to you.
Read our blog: Discharged from hospital to a care home? Is your relative getting their entitlement to 6 weeks’ free care?
2. Entitlement to NHS Continuing Healthcare Funding:
As above, if your relative has predominantly healthcare needs, the NHS should pay for all their care (100%) through NHS Continuing Healthcare Funding. We recommend you request an assessment to determine eligibility for this funding as soon as possible after your relative is settled into their care home.
3. Consider Independent Financial Advice:
You can take independent financial advice to protect your assets, such as an Asset Protection Trust or a care payment plan benefit policy that will pay the monthly care home fees. However, financial advice comes at a cost, and we anticipate that most IFAs will not have come across the availability of NHS Continuing Healthcare Funding. No one can say whether an individual has to pay for their care until they’ve had an assessment to determine their eligibility for NHS Continuing Healthcare. So, bear this in mind before parting with funds and commission to an IFA.
4. Entering into a Deferred Payment Agreement (DPA):
If your relative is not eligible for NHS Continuing Healthcare Funding and is required by their Local Authority to contribute to the cost of their care, consider entering into a Deferred Payment Agreement (DPA) with them.
A DPA is an arrangement with the Local Authority whereby you can use the value of your property/home as security to defer paying long-term care fees.
The principal aim of the DPA is to stop individuals from being forced to sell their home to pay for their care during their lifetime.
In essence, what happens is that the LA will enter into an agreement with your relative (or their representative) and take over payment of the care home fees on their behalf in return for repayment at a later date. Think of it as a bridging loan or debt that is deferred. It still has to be repaid and is not written off, just postponed.
Repayment of the loan under the DPA is typically made either upon your relative’s death or when their home is eventually sold.
To protect their loan, the Local Authority will usually insist on taking a first legal charge on the property to ensure that there is adequate security out of the sale proceeds to recoup the care fees they’ve paid to the care home.
They may insist on getting an updated valuation survey as to the value of your relative’s property to ensure that the DPA is commercially viable. You may be expected to pay for this separately or as part of the administration charges.
The value of the charge is typically secured at around 70% to 80% of the value of the home. This margin is intended to allow for fluctuations in market value, payment of accruing interest, increasing cost of care, whilst hopefully, also giving the family some headroom to pay any expenses out of the sale proceeds and be left with a little equity balance. After all, the DPA has to be commercially viable for the Local Authority as it is sustainable for the family, if it is to work and meet the future (rising) cost of care.
In addition, Local Authorities can charge administrative and legal fees to cover the cost of setting up the DPA and the loan can accrue additional interest (capped by the Care Act 2014 at the national maximum interest rate which changes twice a year).
We strongly recommend that you read the DPA very carefully to make sure you understand your responsibilities and liability that you are taking on and your obligations to repay the loan promptly.
Tip: DPAs can be a lot of information to take in, so if in doubt, it is always best to seek legal advice.
Tip: It’s a good idea to check with any mortgage or loan company with an existing charge on your relative’s property first to make sure that they are comfortable with the Local Authority placing a charge on the property.
What happens next?
Once the DPA is established, the Local Authority will take over funding of the care home fees during the first 12 weeks of their care home placement.
During this time, the value of your relative’s property should be disregarded in any means-tested assessment. This is called the ‘12-Week Property Disregard’ and is a period of grace to sort out their financial affairs and consider the options of paying for care.
If your relative went into the care home on a temporary or short-term basis, the12-Week Property Disregard only starts from the date of their permanent placement.
Beware: If your relative disposes of their home within this 12-Week Property Disregard period, any protection ceases to take immediate effect. That means, any proceeds of sale will be considered as fair game and included for means-testing by the Local Authority at the point of receipt.
The DPA then kicks in 12 weeks after your relative has been in a care home.
Are you eligible for a DPA?
To be eligible for the DPA scheme, there are several criteria that have to be met:
- Your relative’s savings and capital must be less than £23,250 (currently the upper limit)
- They have no other funds available with which to pay for care
- They should be a homeowner (or be able to offer another asset that can be used as security instead)
- There should be no one else living in the property who needs to stay there, for example, a spouse, partner, dependent child under age 16, relative aged over 60, or a young relative who is incapacitated
- DPAs are only available for long-term stays (short term or temporary stays in care are not covered)
However, the Local Authority do have some discretion to offer a DPA to those who do not necessarily meet these criteria.
Ending the DPA
The DPA can come to an end in the following circumstances:
- Repaying the full amount due either during your relative’s lifetime; or
- When the property (or other form of security) is sold and the Local Authority is repaid; or
- When the agreement ends naturally upon their death and the amount is repaid to the Local Authority from their estate. When the home is sold on death, your relative’s executors (appointed under their Will) will be responsible for repaying the Local Authority the amount due under the DPA (plus any interest accrued, administrative and legal costs etc.), either, on the date the property is sold, or 90 days after death, whichever is the sooner. This timescale can be extended at the discretion of the Local Authority.
The Local Authority can take legal action after 90 days post-death to recover all monies due to them under the DPA. So, if you foresee any difficulties in complying with the agreement or making repayment, it is advisable to address them with the Local Authority as soon as possible, as late repayment can result in additional interest accruing, administrative and legal costs, until the debt is settled.
Some advantages of a DPA
There are, of course, some obvious advantages of entering into a DPA with the Local Authority:
- A DPA gives your relative (or their representative) the choice as to whether they want to sell their home and how they want to pay for their care
- Primarily, your relative doesn’t have to part with cash immediately, or liquidate investment policies, bank accounts and savings
- It can help buy time and delay the need to sell your relative’s home
- It gives a period of respite whilst your relative transitions into their new surroundings
- It gives peace of mind and flexibility, so that you can choose when to repay the debt to the Local Authority
- The debt is deferred (hence ‘Deferred Payment Agreement’) and pushed down the line to give some breathing space and sort out finances
- It usually only attaches to the home. So, if its value increases, then your relative will be left with a greater surplus from the eventual sale proceeds
- You can still rent the property and continue to claim certain benefits eg Attendance Allowance, Disability Living Allowance (care component), and Personal Independence Payment (daily living component)
Disadvantages of a DPA
There are several, but the main downside is that you will still have to keep up the maintenance and insurance on your relative’s home and pay any existing mortgages.
If the value drops by the time you come to sell the property, there will be less equity left after you’ve paid back the Local Authority’s loan, and worse, there could be a shortfall.
You are incurring interest and other administrative and legal charges over the length of the loan, and tying up funds that perhaps could have been used for other purposes.
The DPA is a legal binding agreement, so read it carefully to ensure you can comply with its terms and any default penalty clauses.
Be sure to explore what’s right and what’s not before you start to use assets or savings to pay for care. There are other options available so, don’t be forced into selling your home unnecessarily to pay for care.
For additional reading around the subject, take a look at these blogs and find many more on our website:
How To Get The NHS To Pay For Care is an easy-to-follow, practical e-book that helps you cut through the confusion and claim what you’re entitled to.