Later-Life Care – a woman caring for an older woman

This week is Dementia Action Week, with events being organised up and down the country by the Alzheimer’s Society to help raise awareness, as well as much needed funds.

Sadly, these days, most of us know someone affected by dementia – a family member, friend, client or colleague. According to the Alzheimer’s Society, someone in the UK develops dementia every three minutes. The effects can be devastating and can affect people both old and young.

As part of their promotion of this week, The Alzheimer’s Society explain, “We all have a role to play in making the UK a dementia-friendly place to live, and that’s what Dementia Action Week is all about.” So, with that in mind, at Progeny, we asked ourselves what can we do to ensure that we’re dementia friendly?

The answer is to help make sure that you and your family are prepared and well provided for in the event that the worst happens. With that in mind, we believe there are 5 key areas that you need to address to protect your future in the event of serious illness:

1. Lasting Powers of Attorney

Whatever your age, whatever the state of your health, we can’t stress enough the importance of putting in place a Lasting Power of Attorney (LPA) to safeguard your future.

There are two types, namely:

  • A Health and Welfare Lasting Power of Attorney (Health LPA)
  • A Property and Financial Affairs Lasting Power of Attorney (Financial LPA)

You can set up either or both (and we would strongly recommend both).

An LPA allows you to appoint someone (and often more than one person) to make decisions on your behalf. You don’t have to have a diagnosed medical condition in order to set one up.

If you don’t have an LPA and something happens to you, your loved ones may have to apply to the Court of Protection. The Court of Protection will then normally appoint someone to make decisions on your behalf. That means you won’t have any say about how you’re cared for and how your finances are managed. Applying to the Court of Protection can also be both slow and expensive.

The Health LPA

As the name suggests, the Health LPA allows your attorney to make decisions about what medical treatment you receive (including life-sustaining treatment) as well as making decisions about where you live. It also covers decisions about your day-to-day care such as diet and daily routine. With this type of LPA, your attorney can only make decisions when you no longer have mental capacity.

A Financial LPA

A Financial LPA allows your attorney to manage your bank and savings accounts, make or sell investments on your behalf, pay bills for you and even buy or sell property for you. It also means your attorney can claim, receive and use your benefits, pensions and allowances on your behalf.

Unlike a Health LPA, a Financial LPA allows your attorney to manage your financial affairs when you still have the mental capacity, which can be important if you are unable to get out and about.

If you have a business, you can appoint different attorneys for your personal and business affairs under a Financial LPA. However, a Financial LPA only relates to money and property in England and Wales, so if you have property or investments overseas, you will need to take professional advice about the law governing that country.

Setting up a Lasting Power of Attorney

It is possible to set up an LPA yourself, but we recommend that you seek professional assistance in order to ensure that everything is taken care of. Your chosen attorney doesn’t need to have any legal or ‘attorney’ experience, but it helps if they’re based in the UK. Other than that, and provided they are over 18 and have the mental capacity, you can choose almost anyone: a friend, relative, your partner, parents, children or a professional.

With an appropriate LPA in place, you know that someone you trust and who knows your preferences and specific instructions will be in charge of your care and your finances. Don’t make the mistake of putting it off until it’s too late.

2. Your Will

Without a Will, when you die, all your assets, property and money will be dealt with under the rules of Intestacy. That means you won’t have any say over how your assets and estate are dealt with. If you have a step-family or a partner you’re not married to (or in a civil partnership with), they may not receive anything.

As with LPAs, you don’t necessarily need a solicitor to write a Will (although you must make sure it complies with the legal requirements in order to be valid). However, there are many situations in which we would strongly recommend using a solicitor – see this blog post for a full run-down.

Regardless of your state of health, setting up an LPA, writing your Will, and ensuring it’s still valid (when you marry, any existing Will is revoked) are an absolutely essential part of protecting your future.

3. Making financial provision for your future

You’re never too young to start planning your later-life care. The process can actually be quite cathartic and starts with thinking about what you want your later life to look like. That doesn’t necessarily just mean your financials; it includes the standard of living that you want to enjoy both in your early and late retirement.

One of the big benefits of lifetime cashflow modelling is that it allows us to factor in various ‘what if’ scenarios. This means we can work out your financial requirements if you live a long and healthy life, but we can also work out what you’d need in the event that you were diagnosed with a life threatening or debilitating illness such as dementia.

This in turns enables you to make important decisions early on, while you still have the capacity to do so. How would you want to be cared for, what would that cost, and would your surviving partner have sufficient means to support themselves? What do you need to do now in order to ensure that you achieve your goals and desired standard of living even if you are taken ill?

Clearly, the sooner you start this sort of financial planning the better, but it’s really never too late. Even in a relatively short period of time, with the right financial advice it may be possible to manage and grow your wealth in a way that could make a significant difference to your future.

4. Your legacy

One of the more pleasant aspects of getting your affairs in order is considering whether you want to leave some sort of legacy and if so, what it will look like. A Financial Planner can assist you with this, and the process often involves a questioning process to help you work out what matters to you and how you want to be remembered. (For more, read this blog).

The ways in which you can leave a legacy are innumerable and include writing a book, setting up a business, setting up a charitable foundation, leaving a significant donation, or providing for your family (e.g. funding the purchase of a house or school fees).

You can then weave your legacy goals and ambitions into your financial plan, ensuring that your standard of living is met, but that you also leave the legacy that you envisage.

5. Inheritance Tax planning

If you have a reasonably large estate, it’s important to carry out Inheritance Tax planning while you still have mental capacity. You have a personal tax allowance of £325,000 and normally your Inheritance Tax liability will be 40% of any amount of your estate which exceeds this amount.

This means that if your estate is worth £600,000, the Inheritance Tax charge will be 40% of £275,000 (£600,000 less £325,000).

There’s normally no Inheritance Tax to pay if either:

  • Your estate is worth less than the £325,000 threshold
  • You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.

The additional ‘main residence’ allowance

There is now an additional allowance available in respect of your family home, called the Residence Nil Rate Band (RNRB). It relates to your main home, where you leave it to a direct descendant (for example children, step children or grandchildren).

For this tax year (2019/20) this allowance is £150,000. That means your total allowance is £325,000 plus £150,000, so that you could leave a total of £475,000 tax free. This additional allowance will rise by £25,000 in 2020/21 to £175,000 (meaning a total allowance of £500,000).

Married couples and civil partners can also pass on anything which hasn’t been used of this tax-free allowance to their partner.

Unfortunately, if your property is worth between £1 million and £2 million, slightly different rules apply and you lose £1 of your main residence nil rate band allowance for every £2 of value over £2 million.

Careful planning will be necessary to ensure that you take full advantage of your allowance, particularly if you have more than one property.

Reducing your Inheritance Tax liability

Notwithstanding the above, if you’re still at risk of incurring an Inheritance Tax liability, there are a number of ways you can mitigate it:

Charitable giving. It’s sometimes possible to reduce the rate at which Inheritance Tax is charged from 40% to 36% by leaving 10% or more of your assets to a charity in your Will.

Gifts. There are a number of ways you can give away your money in order to reduce the value of your estate for Inheritance Tax purposes. These include giving away up to £3,000 away each year as well as various limited gifts to other people. However, the key is to ensure that you don’t give away so much that you can’t fund your own care or cost of living. Again, lifetime cashflow modelling is extremely helpful to ensure you strike the right balance.

Trust funds. Money placed in a trust fund is not included in the value of your estate for Inheritance Tax purposes. This can be a tax efficient method of leaving a legacy or providing for your children or grandchildren.

Pension. Your pension assets won’t necessarily form part of your estate for Inheritance Tax. If you die before you’re 75, money purchase pension benefits can be drawn down by your beneficiary tax free. Therefore, you should consider whether it would be more appropriate to use other assets or income during your life and save your pension to pass on to your beneficiary.

Life insurance. Life insurance may be one method to consider as a means of paying any Inheritance Tax liability. Once again, you should consider setting up a trust to avoid the insurance payout increasing the size of your estate.

Inheritance Tax remains a complex area, and we would always recommend early planning and professional advice. You should also always take professional advice if you are thinking of disposing of assets in your lifetime, in case this results in a Capital Gains Tax liability.

Take action this week

A dementia diagnosis is always going to be difficult, but it’s not something anyone can afford to ignore. Of course, preparation and financial planning can’t change a diagnosis, but they can make life easier for sufferers and their loved ones by making sure they are well provided for.

If you do nothing else as part of Dementia Action Week, please make sure you’ve dealt with at least some of the 5 areas outlined above. It could make all the difference.

The Financial Conduct Authority does not regulate income tax planning, will writing or inheritance tax planning.

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