Top ten: Start planning early to ensure your old age does not become age of worry

Published on Friday 20 November 2009 18:36

EACH week The Scotsman gives you a top ten guide to pertinent financial issues. Planning for your a relative's old age is an emotive and complex subject, but acting early to decide who will look after their money, property and welfare if they become incapacitated can save high costs and heartache should they lose the ability to manage their own affairs.

Fiona Rasmusen, partner in Edinburgh legal firm Gibson Kerr, offers her top tips on planning for care in the future.

1POWER OF ATTORNEY A power of attorney (POA) gives legal authority to another person to deal with aspects of the granter's business such as finances, property or personal welfare. Without POA, family members contacting a person's bank or building society will not be able to gain the power or information needed to help with a person's affairs. Under the Adults with Incapacity (Scotland) Act 2000, a person will be unable to grant these powers if they become incapacitated, for example through physical injury or mental illness, so it is vital to grant POA before they are actually needed.

2 AVOID THE COURTS If a doctor deems that a person has become mentally incapable of granting POA, relatives will have to resort to costly and time-consuming court proceedings to secure guardianship or an intervention order. Thousands of pounds worth of legal action can be avoided by arranging official POA while elderly relatives are able to do so.

3 BENEFITS CHECK Pensioners and all families earning under 66,000 should check whether they're missing out on benefits to which they are entitled. Local authorities may grant 153 a week for personal care, rising to 222 per week if nursing care is also needed. An independent adviser or a government agency such as The Pension Service (0845 606 0265 / www.thepensionservice.gov.uk) can review your benefits to ensure you are getting the financial support you are entitled to.

4 EQUITY RELEASE Equity release is one way for homeowners to fund retirement. Using a lifetime mortgage you can release a lump sum from the value of your property. The amount released plus any interest accrued is then repaid with the sale of your estate when you pass away or move into long-term care. Alternatively, under a home reversion plan you would surrender some or all of the ownership of your property in exchange for a lump sum and the right to remain living in the house rent free until it is sold on death. Proper legal advice should be taken before you commit yourself to such an arrangement.

5 MEANS TESTING Local council contributions to care costs can work on a sliding scale depending on a person's savings and financial income. Means testing starts at 13,750 and counts all of a person's capital including the value of any property unless a surviving spouse, partner or relative over 60 lives there. Payments required increase until an individual with more than 22,500 will have to cover their own care fees.

6 HOME OWNERSHIP Couples can reduce the value of their home to be taken into account in the means testing exercise by making sure it is owned jointly, but with no survivorship clause.

On the death of the first spouse one half of the value can go to children or a trust to ensure a surviving spouse is not considered the owner the whole property (and therefore obliged to use the funds to pay for care in later life).

7 THINK MONEY Reducing means tested finances can protect savings from being eaten up by care costs – but it is worth bearing in mind the level of government funding available.

The maximum benefits that can be claimed by an elderly person in Scotland is 222 a week, but Saga recently estimated the average cost of staying in a nursing home in Scotland at 596 a week. Reducing your level of finances may affect the level and standards of care available to you.

8 PENSION Any pension you receive either from the State or from a previous employer goes towards meeting the cost of care, which means that less of a contribution has to come from capital.

9 INHERITANCE TAX Maximise tax reliefs and exemptions if your estate might be valued over the IHT threshold of 325,000 when you die. If your estate is worth more than this, any gifts you make more than seven years before you die will be exempt from IHT. The same applies to any gifts to UK charities, some national institutions and your spouse or civil partner if have a permanent home in the UK.

10 GET PROFESSIONAL HELP By 2033, a third of Scots will be of pensionable age. The demographics make it all the more important to plan for the future now. The area is a minefield and you should take professional advice as each person's circumstances differ.