Deliberate Asset Deprivation?

It sounds like a game show and I am sure the term has got your attention, although for some it is not amusing.

I have been studying the Chartered Insurance Institutes (CII) text for long term care, sometimes referred to as CF8 and passed this test recently. This considers the principals of why this topic should be considered, the conflicts that may arise from other financial planning issues, such as inheritance tax planning (IHT), and some of the solutions that may be considered on their own or in combination with a few arrangements. All very interesting and thought provoking, creating a lot of opportunity to prepare and care for those needing this type of advice and help.

As you can guess, the costs of long term care can be significant and the provision provided by the state once an individual’s assets have been eroded can be low. It may also reduce the choices available to you. Provision from the state will only start after an individual’s assets fall below a current level if £23,250 (2011/2012). And yes, your house value does count towards this (although it may be disregarded in the first 12 weeks of care).

It is this threshold that may encourage some to consider gifting away assets to a level where the cost of care will be met by the state, rather than at the cost of the family. As you can guess, any assessment for care costs will take this into account.

If a gift from the individual’s estate is made within 6 months of the need for care, the gift is likely to be disregarded and added back into the assets of the individual for the assessment. Gifts made prior to this 6 month period may also be included if there was no obvious purpose to the gift being made. Inheritance tax planning may be a fair reason, but the gift away may be challenged if it is believed that the gift was made as a deliberate asset deprivation strategy.

There are a few example cases to reference these challenges and the way gifts (in the specific situations) were treated in each case and these are listed here:

R v. N and E Devon ex parte Coughlan (1999)

Beeson v. Dorset County Council (2001)

Grogan v. Bexley NHS Care Trust (2006)
As you can see from the content of this blog, each case is different and each client and there requirements are different. Therefore, this article should not be seen as individual advice.

As always, I would recommend that you seek independent financial advice (IFA) for your circumstances and requirements.

Keith Churchouse FPFS
ISO 22222 Certified Financial Planner
Chartered Financial Planner

Churchouse Financial Planning Limited, Guildford, Surrey
Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority

Making money lasts as long as you do!

I took a short break from work recently and flew to the sunshine of far away shores. I understand that you need a break every now and then and I managed to smuggle my smart phone into my hand luggage along with an iPad to make the rucksack a mobile office to keep in touch and up to date. All very sad really!

On the gantry to the plane a well known global bank plasters the Walls with thought provoking comments accompanied by related and usually visually dramatic pictures, smothered with their logo. One of these comments read ‘Two thirds of people who have lived over the age of 65 are alive today’. I had to stop (much to the annoyance of the fellow passengers behind me!) and go back again to read this staggering fact. Could this be really true? And if correct, what are the consequences of such longevity?

Making your money last as long as you do is a pre-requisite to overall survival, although we do have the state system to rely on if things don’t go according to plan. However, with the austerity cuts that have been agreed but, in some instances, not instigated yet, relying on the state may not provide you with the minimums you require.

There are also the conflicting demands on your money and assets. You may want to leave as much as is possible to your family on death to save inheritance tax (IHT), but then you might feel that your children have had enough and, to use an acronym, be SKI-ing (Spending the Kids Inheritance-ing). Each will make their own choice.

Questions that need to be asked might be will you have enough income in retirement? Will your retirement spending change when you get there? You might have always wanted to do ‘X’ or ‘Y’ and with some tax free cash in your pocket, your mortgage repaid (hopefully) and the state pension kicking in, now is the time to do it. Think carefully about this. Relating this to the gantry headline referred to earlier, this could just be the third phase of your life (childhood/education, work, retirement, etc). And how long will this last? 20 years? 30 years? Each another chapter of your financial life. Who knows, but planning for this lengthy phase early is vital to make sure that these golden years really are just that, golden.

Have a look at your finances and your financial planning strategy for both know and the future. Then seek independent financial advice (IFA) from a well qualified adviser who can help you plan for this future time. I am sure it will be worthwhile.

As suggested above, we are all different, and will have differing views, requirements, aspirations and needs. Therefore, this blog should not be seen as individual advice.

Churchouse Financial Planning Limited, a Surrey based Chartered Financial planners, can help you with your financial planning as an independent financial adviser.

We look forward to helping you soon.

Keith Churchouse, FPFS

ISO22222 Certified Financial Planner

Chartered Financial Planner

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority.

The only way is up! Inflation increases

I have often jested with clients that there are three levels of inflation. These are the rate the Bank of England suggests, the alternative and usually higher rate that you pay at the till for your groceries every week and the higher rate that you pay for such things as school fees/care costs.

With inflation currently spiking so significantly, these previous ‘jests’ may wel become Ill advised, especially with Sir Mervyn King, Governor of the Bank of England, suggesting that inflation may well peak above its current level of 4.5% (CPI May 2011) at a rate above 5.0%. Personally, I think this may be undershooting the final highs, but this is conjecture.

What does this mean for your finances, other than seeing your fuel bills rising sharply and any salary increases falling short of the increase figures mentioned above? With the possibility of Bank base rates increasing (an historic favoured tool of the Bank to control inflation), many may also see borrowing costs, such as that for mortgages, increasing in the next 12 months. This possible future increase is likely to see family budgets squeezed even further, if and when they happen.

But what of those who are approaching retirement? Many will know that increases in salaries are usually higher than CPI (Consumer Prices Index) and this difference is unlikely to be enjoyed in retirement. This may make your retirement planning even more important because the cost of protecting against the effects of inflation when buying an annuity are far higher than when buying an annuity on a level income basis. Some clients have calculated, that in their opinion, this ‘cost’ is not worth the loss of initial income. However, others see this decision differently and opt for some form of protection against inflation, using a fixed increase or using and index, such as CPI or RPI (Retail Prices Index). Each choice will offer a differing income, dependent on the individual circumstances. Some prefer to use alternative vehicles for their retirement income, such as income drawdown facilities. However, the effects of inflation still need to be considered when thinking about the real purchasing power of your money, both now and into the future.

Financial planning is about considering the choices that you want to provide for, both now and into the future. Inflation and its effects are going to have an impact on these choices. Each of us is different and this article should not be seen as individual advice.

Speak to an independent financial adviser (IFA) about your needs and aspirations for your future requirements.

Keith Churchouse FPFS

ISO 22222 Certified Financial Planner

Director & Chartered Financial Planner

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority.