Background

A family approached us for advice after their mother sold her home and moved into a retirement village. Initially, the main focus was inheritance tax (IHT) planning, ensuring that her wealth was structured efficiently for her beneficiaries. However, as her health declined, their priorities shifted towards securing long-term funding for her care.

I continue to support with periodic reviews of the care plan and estate planning strategies to ensure everything remains on track. Being involved to explain the options, discuss the pros and cons of each and diffuse any family tension that could arise in such situations was incredibly useful to the family. 

The emotions the family went through stretches beyond the dementia, their mother being in care, to how the family cope with it all, and the potential financial strain it has on both the client and family. The client’s family can’t stress enough the importance of having an objective Adviser who guides people through all the key priorities and processes involved.

Solutions

The first stage of planning involved taking steps to mitigate the potential IHT liability while ensuring financial flexibility. The approach included:

• Trust Planning – Gifts up to the nil-rate band were placed into a discretionary trust for the benefit of the grandchildren.
• Life Cover for IHT Liabilities – A seven-year life insurance policy was arranged to cover any potential tax liability on the gifted assets.
• Tax-Efficient Investments – A portion of her cash was invested tax-efficiently to help mitigate IHT.
• Loan Trusts – These ensured that any investment growth occurred outside of her estate, helping to manage the long-term tax exposure*.

This strategy provided an effective balance between reducing IHT liability and ensuring that funds remained accessible should care costs increase in the future.

Transition to Long-Term Care

Initially, care requirements were minimal, with part-time assistance in place. However, as her dementia progressed, it became clear that full-time residential care would soon be necessary. By this point, she no longer had the mental capacity to make her own financial decisions, so her family had to act under Power of Attorney to ensure her needs were met. The writing of Powers of Attorney involves the referral to a service that is separate and distinct from those offered by St. James's Place. Powers of Attorney are not regulated by the Financial Conduct Authority.

One of the biggest concerns was the cost of care and ensuring that fees could be paid indefinitely, without placing a financial burden on her children. The solution was an Immediate Needs Annuity (INA). This annuity provided a guaranteed, lifelong income to cover all care fees, meaning there would never be any uncertainty about how long her funds would last.

Outcome

Certainty Over Care Costs – The Care Plan meant her care would always be funded, removing the risk of financial shortfalls later in life.

• Preserving the Estate – With care costs secured, the family knew exactly how much would remain for inheritance planning.
• Reducing Financial & Emotional Stress – Having an Adviser walk through the options helped prevent tension within the family. It gave them a structured way to discuss the situation and make informed decisions, rather than one person feeling responsible for making difficult choices alone.

Key Takeaways

Long-term care planning is rarely straightforward, and every family’s situation is different. However, careful planning can:

• Ensure care needs are fully covered without uncertainty.
• Protect the family’s financial position while balancing tax efficiency.
• Reduce stress and potential conflicts by having a Financial Adviser guide the process.

If you’re considering care funding options for a loved one, now is the right time to put a plan in place. If you’d like to explore your options, we’d be happy to help.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

*You are not certain to make a profit.

The advice given to this client was provided after a full evaluation of their specific needs, circumstances and requirements. The solutions provided may not be suitable for everyone and the information provided here does not constitute advice.