Case studies

Case study 1
We met with Mrs B when she was 87, just after her husbands death and her own dementia led to her needing to move into residential care. Under the terms of Mr B’s will, all his estate was to be left to Mrs B giving her a total estate of a little over £360,000 mainly comprising of the couples home and a share portfolio, but with an income of around £7,800 less than her care costs. Two of Mrs B’s nieces had been appointed with power of attorney and were (along with another niece) dealing with the deceased estate and Mrs B’s own needs. We reviewed the situation highlighting the above income deficit and also the Inheritance tax liability that would have occurred on her death, calculated to be a little over £50,000 at the time.

We advised her family to

o Register the power of attorney with the court of protection

o Apply for the higher level of attendance allowance

o After obtaining underwritten quotations from all LTC annuity providers in the market, we recommended that £31,513 be invested via a long-term care annuity with Norwich Union providing an immediate tax-free annual income of £7,800 (650 p/m) increasing by 5% p/a, paid direct to the care provider.

o to use a deed of variation (and the splitting of the joint tenancy of the property) to alter the provisions of Mr B’s will, redirecting £150,000 of personal assets into a discretionary trust and investing these via two Investment bonds. The above transaction was approved by the court of protection as it could be demonstrated that Mrs B’s own needs had been secured due to the LTC annuity. The trust fund was also maintained to provide additional security for Mrs B.

o The portfolio of shares were also brought under the management of a stockbroker to simplify the attorneys role.

We have been involved in the continued management of Mrs B’s affairs over the last 7 years however, sadly Mrs B died in July 2007 having been in care for just under 7 years. At the point of her death:-

o The long term care annuity was paying out £10,453 p/a (£871 p/m) and had returned a total of £60,041.

o Income continued to be sufficient to avoid capital erosion.

o Whilst after the initial annuity purchase and falling equity markets in the first few years, the total estate had fallen in value; the investments have provided good returns and the estate at the time of her death is calculated at £391,608.

o The whole of Mrs B’s estate and Mr B’s trust fund was free of any liability to Inheritance Tax.

o Given the current nil rate band of £300,000 an IHT saving of over £36,000 has been achieved.

o Units within the investment bonds can be re-assigned to beneficiaries saving a further £11,000 in income tax on gains made.

Case study 2
Cdr C at age 98 moved into care, and his wife was informed that she would have to pay for the full cost of care as their combined assets were too high and she was a liable relative.

We wrote to the local authority and confirmed Cdr’s assets and pointed out that the joint assets were not relevant. We also pointed out that some of Cdr’s assets were derived from a Prisoner of War award and that Mrs C needed all her income.

Sadly Cdr C passed away after only a short while, however the Local Authority appeal was won and they repaid over £2,500 of fees paid by Mrs C.

In addition whilst looking into Cdr C’s affairs we noted a seemingly high tax charge had been paid, and after further investigations a total of over £4,000 in income tax overpayments was reclaimed.