Long Term Care

Local authority assessment of Investment Bonds – impact on means testing for residential care

How could life assurance investment bonds be assessed in an assessment of residential care needs? Other assets, such as the family home, fall under different rules.

When financial assistance for the cost of residential care is sought from a local authority, the income and capital of the individual applying for assistance will be assessed. Different local authorities can though take very different views.

Many years ago, The Department of Health document ‘Charging for residential accommodation guide’ (CRAG) provided some clarifications on how such investments may be assessed, and is available at www.dh.gov.uk. This appears to have not fundamentally change although is always subject to interpretation.

General guidelines

The National Assistance Act 1948 stipulates that where a local authority pays towards the cost of a person’s care in a care home, the authority must assess what the person can afford to pay for that care and then charge accordingly. Local authorities use the National Assistance (Assessment of Resources) Regulations 1992 to assess an individual’s ability to pay, and CRAG (as it was known) offers additional guidance to authorities in this area.

Treatment of Investment Bonds

CRAG specifically addressed investment bonds (section G – ‘Capital’):

‘Councils are advised that if an investment bond is written as one or more life insurance policies that contain cashing-in rights by way of options for total or part surrender, then the value of those rights has to be disregarded as a capital asset in the financial assessment for residential accommodation. In contrast, the surrender value of an investment bond without life assurance is taken into account’.

This means that theoretically a single premium investment bond should not be brought into account when an individual is assessed for residential accommodation. Capital redemption contracts, however, would be included in any assessment following this definition.

Treatment of withdrawals from an Investment Bond

‘Income from investment bonds, with or without life assurance, is taken into account in the financial assessment for residential accommodation.

Actual payments of capital by periodic instalments from investment bonds are treated as income and taken into account provided that such payments are outstanding on the first day that the resident becomes liable to pay for their accommodation and the aggregate of the outstanding instalment and any other capital sum not disregarded, exceed £16,000’.

Principally this means that where withdrawals from bonds are paid they will be treated as income purely for the purposes of the financial assessment for residential accommodation while residing in the local authority accommodation, if they and any other capital sum exceed £16,000. It would imply that if withdrawals were terminated (where possible) before entering care, these payments would not form part of the assessment, although careful consideration needs to be applied on this point to ensure that the significant motivation for ceasing withdrawals is NOT to increase the local authority payments.

This would apply to personally owned bonds as well as bonds held in trust for the settlor’s benefit or where an interest is retained such as a discounted gift trust.

Deprivation of capital

This highlights how individuals, before entering accommodation, could deprive themselves of assets. CRAG provides an example where capital has been used to purchase an investment bond. The guidance states that Councils will give consideration to see if this was made with a significant motivation being to increase the payments from a local authority. Placing assets into trust is also highlighted as a possible method of deprivation of capital.

In Summary

Planning options immediately before entering accommodation are limited and could impact any financial assessment.