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The Cost Of Caring For Elderly Parents In Your Own Home

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The cost of caring for elderly parents in your own home

More elderly parents are moving in with their offspring as life expectancy rises, resulting in more multigenerational households

Households with three generations of the same family under one roof are becoming increasingly common as elderly people with longer life spans and shrunken assets move back in with adult children, according to a recent study.

The report, by Lloyds Banking Group, found a 7.6% increase in “multi-generational†households since 2005, with about 500,000 today. Such households always tend to increase in a recession, but commentators say the trend is more fundamental because the number of elderly people is rising sharply.

By 2026, there will be an estimated 2.6m people aged over 85 — double today’s figure — and the number of people over 100 will have quadrupled, the government said last week.

The trend comes as families also struggle to meet the cost of school and university fees, with nearly three-quarters of parents saying the recession has increased the financial strain, according to the Association of Investment Companies.

Couples in their forties and fifties, dubbed the “sandwich generationâ€, are therefore facing a double burden of supporting elderly parents as well as their children.

Phil Loney at Lloyds expects more elderly parents to move in with their children during the downturn. “Our research shows that in these uncertain economic times, families pull together and multi-generational households are a clear example of this,†he said.

Elderly parents usually rely on their children before they move into a care home. Peter Timberlake of Friends Provident, a pensions specialist, said: “Most people don’t go from being able to live independently one day to having to go into care the next. It’s a gradual decline during which family members take on more and more of the role of caring until the point when the parent has to go into a nursing home.â€

Last week, the government published a green paper on long-term care, which set out proposals to tackle the financial burden.

Under current rules, people with assets, including a property, worth more than £23,000, have to pay for their own care costs. These are about £30,000 a year but can top £50,000. It means many are forced to sell their properties — severely reducing any inheritance they may have wished to pass on to their children. The green paper proposed the introduction of a compulsory £20,000 insurance, which would cover care costs for the rest of your life. This would be paid on retirement or out of your estate on death.

However, the insurance would not cover the cost of food and accommodation, prompting some experts to suggest that many old people will still be forced to sell their assets. There are, though, plenty of ways to mitigate the costs of care if you plan ahead. Here we offer some tips.


You may be able to receive a carer’s allowance if an elderly parent moves in with you before needing full care. To be classed as a carer, you have to be looking after someone for more than 35 hours a week and earning less than £95 a week. The allowance is £53.10 a week.

There is also disability band allowance, which reduces your council tax by one band if you have to make adjustments to your property to accommodate someone needing long-term care, such as a downstairs bathroom or converting a dining room into a bedroom.


If an elderly parent moves into a separate unit — a granny annexe, for example — you may be subject to capital gains tax when you sell the property, based on the proportion of the property that was separate from the rest of the house.

You may be able to argue against the tax if you can show the annexe was not a separate unit. Leonie Kerswill at Price Waterhouse Coopers, the accountant, said: “If you have an internal connecting door to the annexe and your children also make use of it, you could argue it’s not simply for the benefit of the elderly parent.â€

If elderly parents sell their property and pool the proceeds with the rest of the family to buy a bigger home for all of you, the amount they contribute may still be subject to inheritance tax (IHT).

Unlike gifting, where money given to a beneficiary is IHT-free if the parent survives for seven years, in this case children would still be subject to IHT as the parents are deemed to have benefited from the sale of their assets. “This can be the case even if the bigger house is entirely in the adult child’s name,†said Kerswill.

If, on the other hand, adult children move in with an elderly parent, who subsequently moves into a care home, the council cannot force the rest of the family to sell it and cover care costs.

However, councils would be able to put a charge on the house so that after the parent’s death, they could sell it and recover costs. At this point, the rest of the family would have to move out.

If you have sold a property to move in with an elderly parent, some councils may disregard this when calculating whether they will get support for care.

Councils will generally disregard a property if a relative over 60 or under 16 is living there.

Alex Edmans of Saga, the insurer, said: “You may be able to argue that as the under-16 is living in your house, he or she is financially dependent on you, although there is no hard and fast rule on this.â€


Tax experts suggest elderly parents set up a discretionary will trust, which may prevent one of them having to sell the property to pay for care.

Suppose the husband owns the house and it passes to his wife on his death. She could then be forced to sell up and use the proceeds to pay for her care.

However, if husband and wife were joint owners, with half the house moving into a discretionary will trust for the benefit of the children on the first death, the council might only be able to get its hands on half the property.

You might also be able to argue that, as the council can only sell half the property (as the other half is owned by the trust), the value of the other half is effectively nil. “You can’t easily sell half a house after all,†said Mike Warburton of Grant Thornton, the tax adviser.

You can only place up to £325,000 of assets into trust on the first death. Above that, it is subject to a 40% IHT charge.

Under the “deprivation of assets†rule, you have to show you are not trying to avoid care-home fees by gifting or placing assets in a trust. “It’s all to do with what your intention was,†said Danny Cox of Hargreaves Lansdown, the adviser.

Remember that if you put a property into trust in your lifetime, rather than on the first death, you cannot continue to live there unless you pay a commercial rent.


Some councils will agree to cover the cost of care as long as it can sell your property to recoup the costs when you die. You could also opt for a lifetime mortgage option, which pays a lump sum secured against your property. Interest is rolled up and paid back when you die through the sale of your estate. You are usually paid up to about 50% of your home’s value.

Aviva, for example, offers a lifetime mortgage with a fixed rate of 6.79%. Someone with a property worth £250,000 could take a lump sum of £62,000 at age 65. That debt would have grown to £120,668 after, say, 10 years, which would have to be paid from the property’s sale.

Instead of taking out a lump sum, you may be able to withdraw a regular amount, secured against your property. The advantage to this is that you only pay interest on the amount of cash you receive.

There are also IHT advantages as every £1,000 you withdraw from the property’s value is in effect a £400 death duty saving, assuming your estate is worth more than £325,000 — below which no IHT applies.

You could also choose a home reversion plan whereby a company buys your property at below market rate (usually 60%-70%) and allows you to live there for the rest of your life. The money you receive from the “sale†can be used to cover your care costs until you die.

Cox said: “Equity release can work very well in some circumstances but it should be last on your shopping list. Once you have started to spend the equity in your house you are left with nothing else to fall back on. Always look for lenders who are a member of Ship (Safe Home Equity Release) where you are guaranteed never to be in negative equity or forced to sell your home.â€


If you have a lump sum, from the sale of a property perhaps, you can use the money to buy a care-fee annuity, also known as an immediate care annuity. Unlike traditional pension annuities, these pay far higher yields — in the region of 15%-30%, compared with 6%-7%. All income is tax free.

You can choose to have your income rise in line with either the retail prices index (RPI) or a fixed annual 3% or 5%.

If you had a lump sum of £100,000 it might buy you an income of £15,000-£30,000 a year, depending on your condition. The income would go straight to the care home.

Alternatively, you could put the money in a savings account and pay for care by drawing regularly from it. However, there is a danger the pot will run out if you have a prolonged stay.


You could also opt for a long-term care insurance policy, though it can be prohibitively expensive. One group offering the product is Partnership Assurance. Under the scheme, you pay a premium to receive a tax-free payment to cover care.

You have to fail a test of certain “activities of daily life†to receive the money. These include not being able to feed yourself or not being able to move or wash properly. Premium costs vary but if you wanted £500 a week after failing two activities of daily life, you would pay a one-off lump sum of about £20,000 for a male or £40,000 for a female, both aged 65.

What the new rules mean

What are the current rules on care-home costs?

If you have savings of more than £22,000, including the value of your property, you have to cover care-home costs yourself. If you have less than £14,000 of assets, your full care costs are covered, up to each council’s limit. Anything in between means you get aid on a sliding scale.

What if I am cared for at home?

If you are cared for at your own home or the home of a relative, some councils may assess how much you receive based on income rather than the value of your assets. Your income must total less than the level of income support, plus 25%. This is about £8,450 a year, according to the National Pensioners Convention, a campaigning group.

What was proposed last week?

The green paper had three options: a “co-payment†scheme where the state would pay a third of all care costs, and two insurance plans. One is voluntary, and people would contribute either at retirement or throughout their lives. An estimated £25,000 contribution would guarantee care for the rest of your life. The compulsory scheme would be less — about £17,000 to £20,000.

Would I still have to sell my home?

Yes, because none of the schemes covers food or accommodation. This could be about £20,000 a year, so you might still need to sell your assets to pay for this.

Case Study - Counting the cost of care

When Helen Coates, 85, became ill, it meant she could no longer be cared for by her daughter Tricia, 49, and her husband Stuart McDowall, 47, at their home in York.

Helen initially moved in with Tricia when she started needing care, adding to the family’s financial pressures. Tricia is also saving up for her twins, Holly and Alex, 14, to go to university.The multi-generational household was broken up when Helen was forced into a care home in York about four years ago.

“It became impossible for her to be looked after properly at home,†said Tricia.

Tricia manages the payments — about £350 a week — to the council. As Helen owns her own house, she is not eligible for council aid and has to pay costs in full. Part of this is taken from her savings. A charge has also been placed on Helen’s house so that the council can recoup its costs when she dies.

Grand parents retire in near poverty, their kids don't have jobs, and everybody is up to their neck in debt.

That pie in the sky £20,000 isn't going to do much either.

Just now we have reached the inflection point, and the future is not going to be a very nice one relative to the last 25 years.

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The financial cost can break an individual.

The emotional cost can kill you.

Yes. Having sick and disabled family is very difficult, and several orders of magnitude more trying when that family member(s) is in your home.

Briton's are already so uptight and out of touch with health and medicine. How will the population deal with this is beyond me.

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I worry about this. Solitude is like oxygen to me.

I choose to live alone, rarely hang out with friends (none of whom I consider close), no girlfriend these days (my own choice), the thought of a wife and/or children is a Dolby Digital widescreen nightmare.

So as far as it's in my control, my life is how I like it. But I worry that if a parent becomes ill, then I may end up having to sacrifice my solitary lifestyle.

(To those who think my life sounds depressing, it's the best in the world. In the day I work at a rewarding, sociable job - GP - and in my free time I write musical theatre and promote my writing - which involves watching shows and schmoozing in the bar with directors etc. However this is definitely work, albeit very pleasant - I wouldn't be hanging around the theatre bar trying to be charming if I didn't have an agenda. So it's not that I dislike human contact. Just that I like it to be within clear limits where at the end of the day I go home and escape from it.)

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