Michael Young, Chairman of STEP Worldwide, 9 January 2012
The issue of how we fund care home costs in England and Wales has been a politically contentious one for years. One in three women and one in four men are likely to need long-term care, yet few see the current system – which can see someone’s home and life savings liquidated and used at the behest of a local authority to pay for care costs – as being fair.
The Government established the Commission on Funding of Care and Support chaired by Andrew Dilnot to look at the issue. In its report the Commission made firm recommendations for radical reform to a system it has described as “confusing, unfair and unsustainable”. One of the key aspects of the suggested reforms was the introduction of a ceiling on the amount any individual could be expected to contribute towards long-term care. Unfortunately, however, there seems to be little political appetite at present to push through such reform. Indeed the latest indications are that reforms could be many years away. Given the current economic climate and the rather parlous state of many local authorities’ finances that is perhaps unsurprising.
The result however is that both families and the STEP members who advise them are left struggling with a legal and regulatory framework around the issue of care home fees which is generally recognised to be badly in need of overhaul and which is patchily and inconsistently applied by local authorities.
Against this background there is growing anecdotal evidence that an unscrupulous minority of so-called advisors are exploiting the fears and uncertainties created by the current system to misuse products and structures and sell them aggressively as a means of avoiding liability for care home fees – ignoring the fact that, at the end of the day, the arrangements promoted might well fail to do anything of the sort.
The current law rests on an intentions test, something which is always likely to cause problems and complications. While there are many very valid reasons for thinking about estate planning, if arrangements have been entered into with the intention of avoiding liability for care home fees they can be set aside by the courts and local authorities can take the assets to pay for care costs. Proving intention is never easy, however, and in practice we seem to have arrived at a situation where many local authorities do not take action unless arrangements are set up very shortly before someone needs to enter into care.
Even so, the current “blind-eye” adopted by many local authorities to schemes aimed at avoiding liability for care home fees might well change in the future. Funding pressures may force local authorities to take a more aggressive stance. Indeed, as the popularity of such schemes grows, it can only add to the pressure on local authorities to take firmer action. It is essential therefore that we consider the issue of what will happen if there is a change of attitude on the part of the authorities towards the use of trusts and many of the other mechanisms used to avoid care home fees.
The first thing to say is that many of the clients who have spent time and money taking action which they believed was protecting their savings are likely to be angry and disappointed when they find that it hasn’t worked.
Second, disappointed clients might well want to try and blame someone, and, however clear the warnings given to them at the time, they may blame their advisors. There is therefore a clear risk of reputational harm both to the profession and to some of the widely used but occasionally abused structures used in this area such as trusts.
Third, unless the warnings given by advisors about the dangers inherent in such schemes have been very clear indeed, there is every chance that irate clients will seek compensation. If such claims succeed that could be very expensive for the profession, but even if they do not, the experience of other industries is that waves of compensation claims when “a product fails” are both extremely expensive to process and very damaging to reputations.
Against such a background I believe STEP members should proceed very carefully in any discussions with clients about how to fund or avoid care home fees. Certainly in my view, any reputable advisor should be very wary indeed of promoting any scheme aimed at avoiding liability for care home fees. Indeed, given the uncertainties about both the practical application of the current rules and what will be the shape of any reformed scheme – likely to be introduced at some point currently unknown but very probably well within the lifetime of any arrangement set up today for a client – I simply do not see how any advisor can give well-based recommendations to their clients in this area. Relying on a local authority to turn a ‘blind-eye’ to an arrangement designed to circumvent the ‘capital adequacy’ rules in relation to liability for nursing home fees seems to me to be a very poor basis on which to advise a client.
What if a client approaches their advisor about such a scheme, perhaps because they have seen publicity or heard about them from friends? This, I know, is a situation many STEP members have encountered. In such circumstances the advisor has a clear duty to the client to explain carefully and fully the potential pitfalls. Should the client wish to go ahead in any case, it would be prudent in such circumstances to ensure that the warnings given had been very carefully documented and acknowledged by the client.
One of our major banks recently hit the headlines, receiving the largest ever retail fine from the FSA and being required to foot a large compensation bill. HSBC’s mistake had been to give inappropriate advice to elderly clients regarding long term products designed with care home fees in mind. I think it is fair to say that if one of our major financial institutions can get it so expensively wrong in this area, every STEP member giving advice to the elderly about care home funding should also be looking very carefully at the procedures they have in place.
My core conclusion, however, is that the situation that has now been created around funding the costs of long term care creates an impossible position for everyone – local authorities, the public and advisors alike. The latter involved in the highly laudable process of trying to make sensible and responsible financial plans for the elderly. We have a current legislative framework which few support, not least because it creates a post-code lottery based on the attitudes of local authorities. Surely it should not be possible for local authorities to pick and choose what legislation they will enforce and what they will ignore. Such an approach is hardly equitable.
Alongside the uncertainties created by such a framework there is the prospect of future, as yet unspecified, fundamental reform which whilst undoubtedly needed, could very easily make any plans drawn up now pointless or ineffective. STEP will be writing to Ministers urgently, highlighting the difficulties now being created for those wanting to make plans for their later years and urging a rapid clarification of the current legal and practical uncertainties.
Source – STEP Michael Young – Click here for Press Release
