My mum is in a care home
and it’s expensive
Issues & Concerns
David and his wife Hannah came to see me to chat about his mother Rachael, who was 84, suffering from dementia and had just moved into a care home. David’s dad had passed away some year’s previously, leaving Rachael with a decent widows’ pension, savings and the family home, worth c. £600,000.
David and Hannah were concerned about the long term costs of the care home, which were greater than his mother’s pension income, and increasing at a much faster rate. Being candid with me, whilst he appreciated that his mother’s estate was hers he had counted on receiving some inheritance eventually and didn’t want it all to go in care home fees.
Helping David and Hannah was quite straightforward: we ran the numbers and established that there was a monthly shortfall of £2,000. We looked at the viability of renting the family house, what the costs would be to prepare it for rental in the first instance and the time involved. We calculated how long her savings and investment would last (£600,000 in savings and investments) and we also obtained medically underwritten quotes for an ‘immediate long term care’ bond – Simply put this is a lump sum lifetime annuity where the income is paid directly to the care home (usually free of income tax).
In the end the best solution was a combination of the above: a long term bond which cost £200,000 paying out c. £1,500 per month (increasing annually by RPI + 2%); David and Hannah spent £35,000 refurbishing the family house and now rent it out for a ‘net’ income of £900 per month – taking tax and agents fees into account. The remaining savings were split into two segments – a cash buffer plus some longer term investment to help combat inflation.
David and Hannah are very happy that his mother is safe and secure in her care home and that financially the care home fees are covered for as long as she lives.
David knows that eventually he will inherit the balance of his mother’s estate; in the meantime this is being managed in a sensible and secure way
By Jason Lurie, Chartered Financial Planner