Family finances:
Caring for elderly relatives

Caring for elderly relatives can put a strain on family finances. The more you can plan ahead the better, but it is not always an easy topic to discuss.

In financial terms there are generally three issues connected with caring for elderly relatives:

Helping them to manage their financial affairs

Funding long term care costs

Ensuring they have written a tax-efficient will

Writing a will and inheritance tax planning are covered in detail in our section on Death and are not dealt with further here.

Helping them to manage their financial affairs

As your relatives get older they may need assistance with their day to day finances. You may also wish to protect them from unscrupulous salesmen who persuade them to spend or invest their life savings unnecessarily.

This may be done on a relatively informal basis but it is possible for them formally to hand over power to manage their affairs to you. This is done be way of a power of attorney giving you the power to act on their behalf in respect of their property and financial affairs.

An ordinary power of attorney is usually created for a specified period of time in cases where the person granting the power (the donor) will be unable (but not incapable) to act for themselves (such as going abroad) or where they do not wish to act for themselves. An ordinary power of attorney will usually end at the specified time, if revoked by the donor or if the donor loses mental capacity or dies. An ordinary power of attorney cannot therefore be used where someone is incapable of acting for themselves. There is no requirement to register an ordinary power of attorney.

Up to 4 attorneys can be appointed and the donor can set out in the document setting out the power of attorney whether they have general, wide ranging powers or limited powers such as managing bank and building society accounts.

An enduring power of attorney can be created to allow you to act on your relative's behalf should they become incapable of doing so at some point in the future. An enduring power of attorney must be established whilst they are capable of making their own decisions but only comes into force once they become incapable of managing your affairs. It must be registered with the Court of Protection once you judge that your relative has become incapable. It ceases on their death.

Up to 4 attorneys can be appointed and usually they will have general, wide ranging powers to carry out virtually any action the donor could have carried out themselves if they were capable.

A deed of revocation can be used to cancel:

an ordinary power of attorney at any time

an enduring power of attorney prior to its registration provided the donor is still mentally capable.

In the event that the only attorney dies, an ordinary power of attorney will cease (but the donor will be capable of making their own decisions and can establish a further power of attorney if required). If you are the only attorney with an enduring power of attorney, then it will also cease on your death but the Court of Protection will step in to manage the affairs of your incapacitated relative.

Funding long term care costs

The funding of long term care in the UK is a contentious issue. If you do not qualify for NHS or local authority funding you can find that all your assets are very quickly used up to pay for your care, leaving little to pass on to your family on your death.

The cost of long term care depends on your individual requirements, in particular your state of health and any medical conditions. Whether funding is available for your care will depend on the following:

The type of care you require, such as basic day to day assistance or nursing care

What assets you have, typically less than �20,000 to qualify for some assistance and under �12,000 - �13,000 for full assistance.

As accountants we cannot offer advice or assistance on the type of care required or the level of funding you may be entitled to. However once the your own contribution to your care costs have been determined we can provide advice and assistance as to how best to meet those costs.

Generally long term care costs will be funded by a lump sum from life savings or the sale of your former home. Once you have a lump sum, you will need to invest it to provide you with sufficient income to pay your care costs. There are however a number of tax-efficient ways of converting your lump sum into a regular income without high levels of risk:

An inheritance tax efficient investment

A purchased life annuity

An immediate needs annuity.

All of these have the advantage that the amount you are paying out is known at the outset and there is no danger that the funds will run out during your lifetime. This can provide a great deal of security for the individual concerned as well as providing the comfort that they know that the remaining balance of their estate will be left to their family on their death. The �risk� associated with the unknown payment period is taken on by the investment company or annuity provider leaving you with certainty for your lifetime.

Each method has its own particular advantages and disadvantages and it is important to take professional advice over which is most suitable for you.