Citizen 2025 | Care, capacity and inheritance
When it came to planning for older age in light of the UK becoming a ‘live longer’ nation, our 2015 Citizen 2025 report introduced the concept of ‘SKI-ING’ or ‘Spending the Kids’ Inheritance’. Not exclusively on frivolous leisure activities and holidays, however, but on more mundane matters such as care costs. In fact, Knight Frank predicted in 2015 that care costs would rocket to £70,000 on average a year by 2035.
Fast forward to 2025, and in the midst of a very real ‘middle class care gap’, that figure has already been achieved. And there are no signs of slowing, given the huge NHS funding gap, which is also considerably larger than we predicted in 2015 at £38 billion a year by 2039.
The reality of rising care costs
In light of this, as many as 74% of UK families are struggling to afford care costs, with costs having risen by over 40% since 2020.
To counter this, some families are using their properties to enter into Deferred Payment Agreements (DPAs) with their local council to cover care costs, which are then recouped by the authority after their death. In 2024, there was a 35% rise on the previous year in the number of families across the UK that put DPAs in place.
While this may bring peace of mind that the cost of vital care is covered, future generations lose the family home and inheritance. A sensitive topic with no obvious right or wrong answers, many younger members of the UK population are still relying on this inheritance to fund their future as the cost-of-living crisis continues.
“I am increasingly seeing clients encountering significant financial challenges, particularly when addressing a nearly £60,000 shortfall for care needs, which is a common scenario if no additional funding is available. This amount is calculated after accounting for pension income and often results in the rapid depletion of savings, leading to deferred payment agreements against clients’ properties.
Additionally, the lack of allowances for income tax, the reduction of Capital Gains Tax allowances, and inflation affecting many essential items for retirees are compounding the pressure on their incomes and savings to cover these shortfalls.
Recent legislation incorporating pensions into estates is creating planning difficulties. For instance, clients with serious health issues may not fully enjoy their retirement savings, leading to potential Inheritance Tax liabilities. This is further complicated when pensions are passed to beneficiaries other than partners, potentially triggering an income tax event of over 60% of the pension pot. Cases involving widows in poor health now necessitate more technical advice to help safeguard their hard-earned savings and ensure they can pass them on to their families.
It’s why financial advice has become even more important. I’ve been in the industry for 20 years, and my time spent on these areas has become more sought after.”
– Stephen Elvin, Independent Financial Advisor at Stephen Elvin Wealth Management
The inheritance dilemma
It also revealed that:
- A third (34%) reported that they were financially dependent on an anticipated inheritance to some extent.
- Those aged between 35 and 44 (47%) are the most reliant on this inheritance.
- Paying off (26%) or reducing (25%) their mortgage were among the top ways people thought this inheritance would help.
- Plus providing financial support to their own family (23%) and clearing off credit card and loan debt (23%).
Given the pressures on both generations, the 65+ ‘boomers’ in terms of care costs and the middle-aged in the eye of the cost-of-living storm, there’s no easy answer. However, whatever the solution, careful planning across generations in terms of health and wealth can alleviate some of the challenges.
The cost of avoiding difficult conversations
Unfortunately, whether through avoiding difficult conversations or putting things off, often this future planning around care, Wills, and estates doesn’t take place, or only happens as a reaction to a relative becoming unwell. Sadly, for some families, this can be too late, where a family member has lost the mental capacity to be able to legally put future-proof solutions in place.
“Estate planning is something people put off. It’s understandable that we don’t like to think about our own mortality, and sometimes our personal circumstances are so complicated that it is difficult to reach a ‘fair’ split of our estate between family members and friends. However, all too often we see the aftermath of leaving things too late. Someone dies suddenly without a Will and their bereaved loved ones are left in limbo, or a parent loses mental capacity and care decisions are made by an independent Deputy, rather than those who know them best. All of this could be avoided by getting that Will or LPA sorted.
This is even more important if your circumstances change; many people don’t realise that marriage revokes a Will, for example. These legal documents are as much about protecting best interests as they are about preventing undesirable outcomes.”
– Anna Molter, Partner and Head of Wills, Trusts and Probate
LPAs: the legal safety net
In our 2015 report, our legal focus group predicted that 21-30% of over-70s would experience mental capacity issues in the future, making it essential to get things like a Lasting Power of Attorney (LPA) in place. A Lasting Power of Attorney gives a person’s nominated loved one legal authority to make key decisions on their behalf about their finances, health and welfare if they become unable to do so in the future.
Similarly, in 2015, the Alzheimer’s Society forecast there would be 1 million people in the UK by 2025 living with dementia. Already at 982,000, this figure has almost been reached.
A review of 40 cases brought before the Court of Protection found that 70% of those cases involved an individual whose capacity was impaired due to dementia or a learning disability. Where there is no Lasting Power of Attorney in place and an individual is determined to lack capacity to make vital health decisions on their own behalf, the Court of Protection is appointed to make those decisions for them, or appoint someone else.
With a valid LPA, there is no lengthy wait for Court of Protection proceedings as the appointed Attorney (often a loved one) can make decisions on the individual in question’s behalf.
Blog | Dementia and the importance of a Lasting Power of Attorney
The importance of difficult conversations
Undoubtedly, discussing intergenerational health and wealth isn’t always an easy conversation to have within families. However, getting things in place to ensure that every member of the family’s interests are protected in the future can provide peace of mind for all involved.
To find out more about how Barcan and Kirby can help with later life planning, Wills and Powers of Attorney, call 0117 325 2929 or fill out our online enquiry form.
