Archive for the ‘Inheritance’ Category

Deadline to the Breadline?

Here’s a thought. It seems that the average person in Britain has only 19 days of savings to tide them by if the worst happens – e.g. loss of income, criticFamily Flickr swan-tal illness or death.

That’s according to the recent report from Legal & General.

There are some startling facts in there. For example the report reveals Britons typically spend more of their income on alcohol and tobacco than on protecting the income that pays for all of this with financial protection products.

And yet according to the British Gambling Prevalence Survey (BGPS) scratch cards alone were enough to tempt 24% of British adults to spend their money in this way, with 15% playing at least once a week. The “it’ll never happen to me” approach seems to be alive and well in Britain with only one in three UK adults having a life insurance policy in place.

This is disturbing when the average premium for life insurance last year, according to Legal & General, was only £189 per year. That’s around £3.50 a week.

As advisers we see the aftermath of both scenarios – those that have planned ahead and those that  haven’t. Two recent cases bring that into focus for me. In both cases the husband was in his 40’s and died one very suddenly and the other after a short illness.

For the couple that had planned the wife was able to repay the mortgage and had additional money for income so that the future financial security of the family to be taken care of.

For the couple who had some cover but who hadn’t updated their policies the wife didn’t have enough money to repay all the mortgage. She has had to go back to full-time working just to be able to keep the house they live in. Childcare is a major issue and they rely on a network of carers, friends and family to make it all work. There’s little excess money for when things go wrong and not a lot for luxuries like holidays, birthdays etc, When I met the wife recently she was so upset that they hadn’t reviewed their protection to make sure that they had enough.

Don’t find yourself thinking “….if only”. The 44 Financial Ltd Family Protection Review has been designed for people like you. Quite simply we’ll work with you to make sure that you and your family have money when you most need it.

To book your initial appointment click here to contact us.

Steve Clark



Credit – Photo (Flickr – swan-t)

Your 5 Minute Catch Up


Here’s a quick and easy catch up on some of the news storied we think you might want to read.

Perils of the wrong pension

Making the wrong choice with your pension can be costly. The Daily Mail told the story of a retired solicitor who was concerned about his poor state of health and wanted to secure lifetime income for his wife from his pension fund. But he bought the wrong type of annuity, one that had a guarantee period of ten years. He died only weeks after the ten year guarantee ended – and his widow was left without any income.

44 Financial offer a full retirement planning service to help make sure that you make the right choices when you are retiring.

Cap on pension charges proposed

The government has opened a consultation on an upper limit on pension charges, reports the Daily Telegraph.

Its target is older schemes, often closed to new members, that can have charges of up to 2.1% a year. Modern schemes have charges of under 1%, and the higher charges can cut pension scheme members’ retirement pots by tens of thousands of pounds.

If you have older pensions that you have not checked for some time it may be worth looking at this. Please contact 44 Financial to discuss our Pension Review & Health Check.

Fund costs are falling

Over 85% of investment funds have created new share classes with lower annual fees, according to research cited by the Daily Mail.

Previously, fund managers could pay rebates to the ‘platforms’ on which investors hold their assets out of their management fees, but new ‘clean’ share classes that pay no rebates offer investors lower charges and a better deal overall. Most platforms are in the process of switching to the new lower-cost share classes.

Charges to hit more trusts

The Chancellor’s Autumn statement is likely to include a measure that will raise charges on trusts, predicts the Daily Telegraph. At present, those seeking to avoid inheritance tax can set up a series of trusts and so long as each trust is worth less than £325,000 no tax is paid. But the legislation provides for a 6% periodic charge every ten years on larger trusts, and it is likely this tax rate will be extended to all trusts whose combined value exceeds the £325,000 threshold.

More could save from offset switch

Millions of homeowners could make useful savings by switching to an offset mortgage, says the Independent. At present only about 10% of borrowers have this type of loan, but with savings rates so low the benefit is significant. By merging your saving and mortgage accounts you avoid receiving taxable interest. Instead of earning a taxable 1% on your savings, you reduce the interest you pay on your mortgage by the amount in your savings account. With mortgage rates at 3-4% you will save far more in mortgage interest than you were earning on your savings.

Tax task forces get tough

HMRC’s tax task forces, set up to track down tax avoidance in specific sectors, are hitting their targets, reports the Daily Mail. In the first half of 2013 they collected an additional £32 million and are on target to bring in over £90 million for the full year. Restaurants, landlords and owners of second homes are among their targets.

Parents shell out more than ever

Young adults are getting an unprecedented level of financial support from their parents, reports the Daily Mail.

Over 70% of home leavers get some help, and nationally parents fork out £44 billion a year, or an average of £1,125 a year per child. But 25-29 year olds get even more, an average of £2,599 a year. The biggest items of support are property (£11 billion), cars (£4 billion) and weddings (£4 billion), but the biggest change in recent years has been the rise in the number of parents helping adult children with their living expenses – rent and bills.

Lenders target accidental landlords

Mortgage lenders are targeting ‘accidental landlords’ who they think should be paying higher interest rates, reports the Daily Telegraph.

Homeowners who have been unable to sell, have moved and rented out their homes have become landlords by accident rather than by choice. They should have informed their lenders and converted from residential to buy-to-let mortgages, but hundreds of thousands have not done so. Often the lender’s buy-to-let interest rate will be as much as 2% above the residential rate.

Mortgage brokers say people whose properties are worth more than their loans can usually re-mortgage to a more favourable rate if their own lender’s but-to-let rate is high, but that those in negative equity are trapped and have to accept their existing lender’s terms.

Social Care Funding –questions & answers

Funding for long term care has become a higher priority over recent years and advice in this area is also important for many who wish to understand the level of care that they may/may not be entitled to receive.Pensioner on Bench debsbyrnephotos

Recent research suggests that many people are overestimating the amount of assistance the State will provide towards care costs in later life due to a fundamental lack of understanding of the new proposals. Here are some of the questions being asked.

According to the Office of National Statistics, the number of people predicted to live until the age of 100 will increase from 14,500 to 110,000 by 2035.

But with this increased longevity comes an increased possibility to having to pay care costs in later life – and potentially for a much longer period.

The Government’s proposals for reform of long-term care funding in the UK will start to be phased in as soon as 2015. Recent research commissioned by the Financial Times suggests that while there is a good awareness of some of the more highly publicised improvements to the current regime (such as the cap on care costs) there is still enormous confusion over how they will work and what they will cover.

With this in mind, we’ve looked at some of the more detailed aspects of the reforms in a simple Q&A style.

Q. Where are we at the moment?

A. Under the current system, if an adult needs to move into a residential or nursing home, the State will help cover the costs if the individual’s assets are below a means-tested threshold. This threshold is £23,250 in England.

Q. Who will be eligible for help?

A. Anybody who has assets below £118,000.

Q. Is everyone eligible for help?

A. No. Where assets (including the family home) are worth in excess of the new £118,000 threshold, the resident will need to self-fund until such time as capital resources are depleted below the threshold or until the £72,000 cap is reached.

Q. Does this mean that the maximum any person will have to pay towards their own care costs is £72,000?

A. Unfortunately not. This is because this amount only applies to the cost of care. Even then it is limited to an amount up to that which the local authority is willing to pay which will count towards the cap.

This means that if the cost of nursing care is £500 per week, but the local authority maximum is £300 per week, only £300 per week will count toward the £72,000 cap. Also the so-called ‘hotel’ costs are not covered. These are the costs of board and lodgings. The individual will be fully liable for these costs up to a maximum of £12,000 per annum.

Q. How does this work in practice?

A. Susan has assets to the value of £250,000. As this is greater than the £118,000 threshold, she will be required to fund her own care costs up to the cap of £72,000.

Susan chooses a care home where the cost of care is £500 per week. However, as the local authority is only willing to pay £300 per week towards care, only £300 per week will count towards the cap.

This means that the cap will be reached after 240 weeks (£300 x 240 = £72,000) by which time Susan will have paid a total of £120,000 towards her care. She will also have had to pay an additional amount towards her accommodation and food costs (circa £12,000 per annum).

Q. Will all contributions made by the resident count towards the cap?

A. No. As can be seen from the above, only an amount up to the local authority rate will count towards the cap. Costs incurred in respect of food, accommodation and personal expenses will not be taken into account either. Likewise, contributions made at a time that the resident is assessed as having ‘moderate care needs’ will not count. Contributions will only count towards the cap from the point that the resident is assessed as ‘eligible’.

Q. What happens when individuals reach the cap of £72,000?

A. The Government will then pay for the cost of care. The individual may still be liable for

  • the costs of care that exceed the local authority maximum and
  • the ‘hotel costs’ of care

Q.  How then would your summarise the key reforms?

A. We’d summarise it as follows:

  • Introduction of a £72,000 cap on an individual’s liability to the cost of care.
  • Means-tested threshold to increase from £23,250 to £118,000.
  • Access to a deferred payment arrangements.
  • ‘Hotel’ costs capped at £12,000 pa.

Q. What are the criteria for determining eligibility for assistance?

A. The eligibility criteria are yet to be announced but draft regulations indicate that the national criteria (which will be introduced in 2015) will be set at a level equivalent to ‘substantial’ in the current system – prompting organisations, such as Saga and Age UK, to express concerns that this will be too high a level.

Q. But at least the house is safe, right?

A. While the Government has made much of the fact that no-one will have to sell their home during their lifetime to pay for care, this does by no means guarantee that the house will be available to pass down to the next generation.

The value of the home will count towards the means test threshold of £118,000 unless an exception applies (for example, the resident has a partner who will continue living in the property).

However, rather than being required to sell the home upfront to pay for care costs, the local authority will put a charge on the property which will be recouped from the estate on the resident’s death. Under new rules, interest will accrue on the amount outstanding, increasing the debt still further.

Q. Does this mean that an individual will not have to sell their house to meet the costs of care?

A. Yes – at least during their lifetime under the deferred payment arrangements. However, the house may need to be sold after their death to meet accumulated costs and interest meaning that the heirs are denied their inheritances.

And finally…

The Care Bill is still making its way through Parliament and is likely to be subject to further change before the proposals are implemented. Ministers are aware of the growing confusion around social care costs, and the Department of Health has confirmed that this will be addressed with ‘new and comprehensive information resources for the public’.

Our Comments

What is clear is that those needing care are in many cases likely to face overall costs that are significantly higher that the £72,000 cap.

With this in mind, clients with concerns will want to consider the wisdom of  making provision for protecting accumulated wealth from the effects of the potential costs of long-term care. This is a minefield and an issue that requires specialist advice – not just from a financial adviser but also a solicitor.

At 44 Financial we work with specialists in this area and can refer our clients to a team that will be able to help them. If you’d like to speak about your family’s situation please give us a call.

Steve Clark

Photo courtesy of Debs Byrne Photos

Power struggle

In an ageing society, more people need others to take decisions on their behalf.

But the law is quite strict on this. So if you need to take decisions on behalf of a relative you need a Lasting Power of Attorney. 

The Financial Times’ guide recently published said that while you can just appoint one or more relatives (two is better than one in case the individual isn’t available when urgently needed), many people also appoint a solicitor as one of their attorneys.

Registering an LPA takes about 4 weeks.

Although not a nice thing to think about getting the right LPA in place can make life much easier for your loved ones if you are unable to make your own decisions in the future.

We work with a number of specialist legal firms who would be happy to chat through the options for you. Give us a call on 0116 380 0133 if you’d like us to introduce you to someone who understands the problem and can help.

Steve Clark

Long term care misunderstood

A Financial Times reader poll on the government’s proposals for reform of long term care revealed widespread misunderstanding (and thatPensioner on Bench debsbyrnephotos‘s the FT’s readership!).

Most people thought that costs would start to count towards the cap (above which the state picks up the tab) as soon as someone was assessed as needing care by a local authority. Not so – the clock starts only when someone’s need is assessed as ‘severe’ or ‘substantial’. 

Over two-thirds of people believe that accommodation and food costs count towards the £72,000 cap – they don’t, and can account for a third of the total costs of residential care.

Most importantly, many people think the proposals mean they won’t have to sell their home – but that’s not true either, since your home still counts towards the value of your assets, and any capital above £23,250 (in England) has to be spent before the state picks up the bill. 

Steve Clark