Every year, thousands of elderly people and their families face the conundrum of how to pay for care home fees – which can typically be between £40,000 and £50,000 a year. We talk to Jeremy Nixey of Alliance member Shaw Lifetime Care, part of the charitable Shaw Foundation, about the unique option they offer.
Q: So what, in brief, is The Care and Home Inheritance Plan?
A: The Care and Home Inheritance Plan (also known as the CHIP) is a revolutionary care funding solution that allows you to pay for your care home without selling your house.
It enables you to move into the residential home of your choice while retaining ownership of your property. The house then forms part of your estate at the end of your life – providing your children, grandchildren or other beneficiaries with a valuable inheritance.
Q: Can you explain why you looked for an alternative to other options currently available in the market?
A: When an individual comes to the point where they wish, or need, to go into residential care, it can be a problematic time for them and their family in terms of arranging for the fees to be paid – especially if they are relying on the funds tied up in their home to pay for some or all of this.
It might be hard to know, for instance:
- How long will that stay be, and how much ( equity ?) will they need to release.
- How quickly can they sell their home – and if they need to sell in a hurry, will they get the market price.
- How long the care home will wait to receive funds.
- What happens if the money runs out.
I’ve been working in this sector for many years, and while the options currently available provide solutions, I’ve long felt that there was room for an alternative which not only took away all of the stress of selling the home to release funds, but would also maintain payments if the individual stays in that home for longer than they initially expect. Critically, one that could capitalise on the rent-earning power of their property to enable their beneficiaries to recover, eventually, all the fees paid out to their care home.
After some testing, we have a financial product that means that the house owner effectively rents out their house through us and generates an income: they effectively use those funds towards their fees and still retain an interest in their asset – and can so pass it on as an inheritance eventually debt free.
Q: How does your Care and Home Inheritance Plan (CHIP) work exactly?
- When someone contacts us to see if a CHIP is right for them, we go through a careful process to tailor both the level of care they are seeking and the financial arrangement that works best for them.
- A consultant will arrange for a comprehensive assessment of their care needs and mental capacity to be carried out by a qualified, specialist nurse or social care assessor.
- This will establish what level of care will they need to maintain their lifestyle safely and happily, and where they would like that care to be provided.
- Based on that, we then put together a bespoke shortlist of care homes, and set out their availability and prices.
Q: How does the financial side work out?
- We establish how much the client will require as income from the house in order to enjoy the standard of care home they are looking for: for instance, if the care home fees are £1,000 a week and they can comfortably cover £400 a week from their pensions and savings, then we would set up a CHIP that paid out £600 a week.
- Allowances would also be made for any future increases in care home fees.
- The total amount available under the plan is 70% of the open market value of the house. For a £400,000 property, as an example, that would be £280,000.
- The rent received by Shaw Lifetime Care from letting the property repays over time all the costs paid out by the CHIP towards care home fees.
- The only costs that the customer has to pay in advance are for their Initial Care Needs Assessment and advice and their legal fees. Both of these up-front outgoing costs can be re-financed as part of the acquisition costs of the CHIP, making their net upfront payments nil.
- CHIP is not available at present where another person retains a right to live in the home when the customer moves into a care home. However we are working on a “CHIP 2” which we hope to launch shortly which will permit this.
- If the client goes ahead, Shaw Lifetime Care then undertakes any necessary repairs and improvements and arranges to have the property let in order to generate an income which will go towards the care home fees.
- The customer grants Shaw Lifetime Care a 99-year lease in exchange for them meeting the costs of their care. They can also choose between two types of plan (variable and fixed) which offer a further degree of flexibility.
Q: What happens at the end of the time that the person remains in care?
- When the care fee contribution is no longer required (because of permanent hospitalisation or the passing of the individual), SLC will provide a schedule of the lease break fees to the beneficiaries for each year until the fees have been paid out of rental income.
- The homeowner and their family retain the full benefit of any property price inflation.
Q: What if the beneficiaries would like to sell the house upon the passing of their relative?
A: They can do so in any of the following three ways:
- Wait until the rent from the property has reduced the Lease Break Fee to nil, terminate the lease and receive the property vacant and debt free.
- Pay the Lease Break Fee and receive the property debt free.
- Instruct us to manage the sale of the property and remit the proceeds net of sale costs to the beneficiaries.
Q: How does this differ from other financial options?
- The Deferred Payment Agreements (DPAs) which Councils operate require the care fee costs charged against the owner’s home to be repaid within a year of the owner’s passing. DPAs may also restrict the owner’s choice of care home. It leaves the cost and responsibility for putting the house into good lettable condition (typically between £20K and £30K) and then letting and managing the house with the client – and any rental income is then also taxed.
- Insurance products such as Immediate Needs Annuities may match the CHIP’s offer of lifetime contribution to care fees, but the cost can be so high that many owners can only afford to purchase them by selling their home.
- No alternative comprehensive property letting and management service repays all care home fee contributions for the benefit of the owner.
- Alternative schemes do not preserve the benefit of home inflation entirely for the beneficiaries and many do not even permit the beneficiaries to retain the home long term.
Q: Who are Shaw Lifetime Care?
Shaw Lifetime Care is a trading arm of an exempt charity: The Shaw Foundation.
The Shaw Foundation set up Shaw Lifetime Care to provide a service which many thousands of people want – to be able to pay their care home fees without losing their home – but which is not otherwise available. It provides this service at minimal cost to the homeowner.
Any surplus profit generated by this trading activity and not retained for operating the company is gifted to Shaw Foundation to support other charities which share its aim of making better care more affordable for all.
Q: What should I do to find out more?
A: If you are a care home operator who would like to know how this scheme could benefit your residents, or an advisor or individual who would simply like to find out more, simply email me at this address: firstname.lastname@example.org.
If you mention that you read about CHIP on this website, the initial preliminary care assessment will be provided free of charge.
Or you can discover more on the website: www.shawlifetimecare.co.uk