Fair deal and farmers - Next year before changes go through
Even with care costs of up to €100,000 a year, the scheme is not always the best answer - so it's vital you do the numbers.
Fair Deal - the State scheme set up to provide financial support to those in need of nursing home care - can be a bad financial move.
This is often the case if you are wealthy - or even just slightly well off. So while you might feel like Fair Deal is the easiest way to deal with crippling nursing home bills (which can run as high as €100,000 a year), the State scheme may not make the best financial sense for you and your family.
Should you have a large estate, you or your family should pay the nursing home fees yourselves if you can afford to do so - rather than going through Fair Deal, advised Paul Kenny, the former Pensions Ombudsman who is now a course leader with the Retirement Planning Council (RPC).
This advice might even apply if your only additional assets to the family home are a holiday home or an investment property - as you can expect to pay more for your nursing home fees through Fair Deal than an individual who only owns his own home.
Under Fair Deal, you pay a contribution towards the cost of your nursing home care - with the State picking up the rest of the tab. The amount you pay depends on your income - as well as any assets which you hold.
You typically pay up to 80pc of your income (including any pension, rental income and social welfare payments) towards the cost of your nursing home care. You also usually pay a percentage (typically up to 7.5pc a year - up to specific limits in certain cases) of the value of any assets you have. Assets can include property, land, savings, stocks and shares.
No more than 22.5pc of the value of your family home can be used to pay for your care (or 11.25pc if you are a couple and your partner remains at home) if you spend more than three years in a nursing home. This cap, known as the three-year cap, only applies to family homes, though in some cases, it applies to family businesses or farms.
"If you have a string of rental properties - or a holiday home, there's no cap on the charge that can be made on such properties under Fair Deal," said Kenny. The lack of a cap in such instances would go against you financially - and any relatives you had been hoping to pass property onto - if you end up in a nursing home for much longer than three years.
The annual 7.5pc charge on any rental properties or holiday homes will apply for as long as you live - assuming you see out the rest of your life in a nursing home.
Farmers and the cap
The rules around the three-year cap often make it hard for those who wish to take over a family farm. Although the Government has decided the three-year cap will be extended to farms and businesses where the farm or business is being passed on to, and operated by, a family member for at least six years, it is likely to be next year before this change to the three-year cap goes through.
The three-year cap (on homes) can only be extended to farms and businesses if a farmer needs nursing home care after suddenly becoming ill or disabled - as long as a family successor takes over the farm. This means farms can be put at risk if a farmer signs up to Fair Deal because the uncapped liability could eat away at the value of the farm, and its assets, over time.
"The scheme's current uncapped liability on the family farm in all circumstances makes it impossible for people to plan for succession," said Geraldine O'Sullivan, executive secretary of the farm family and social affairs committee with the Irish Farmers' Association (IFA).
"We have seen a number of younger family members who have been unwilling to take over the farm because of the uncapped liability. If the proposed change to the three-year cap goes through, it should give farmers the chance to plan ahead - and for succession to take place in a fair way."
Rent or sell cons
Another drawback of Fair Deal is that it doesn't make sense to rent out or sell your home, or other properties, after you have signed up to the scheme.
Four-fifths of any rental income earned from a second property or properties - or indeed from your own home - will go towards the cost of your care if you have signed up to Fair Deal."So only 20pc of that rental income will accrue to you - and half of that could be taxed," said Kenny. "It's therefore far more sensible to leave the property vacant than to rent it out."
Selling your home while you're still in nursing home care can also be problematic - because once your home is sold, you'll lose 7.5pc of the sale proceeds to Fair Deal each year, until your nursing home care ends. The three-year cap applies to your family home while you own it - but not to the sale proceeds of that home should you sell it.
Footing full bill
You could end up footing the entire bill for your nursing home care despite having signed up to Fair Deal, even if you are only just slightly well off.
The amount you contribute towards the cost of your care is determined when you first apply for support from the Fair Deal scheme. The Health Service Executive (HSE) conducts a financial assessment of your income and assets and it is from this assessment that your contribution is decided on.
"If you are very wealthy, your contribution will most likely cover the full cost of your nursing home care," said Kenny. Even relatively modest farmers could find themselves footing the full bill for nursing home care - even though they've signed up for Fair Deal.
"You don't have to be a big or wealthy farmer to find yourself contributing most - or all - of the cost of nursing home care, even if you're going through Fair Deal," said O'Sullivan. "If you have a reasonable farm, a pension, and leased income, you could find that the State's contribution [under Fair Deal] towards the cost of your care is minimal - if anything."
In cases like this, it often makes more sense to fund nursing home care out of your own resources - if you can.
Furthermore, the amount you contribute towards the cost of care is not set in stone once you join Fair Deal. You may need to contribute more should there be an improvement in your, or your partner's, financial circumstances after you sign up to Fair Deal. The inverse is also true.
The onus is on you - or an individual acting on your behalf - to notify the HSE of any change in your financial circumstances "no later than 10 working days after the material change in circumstances" comes to your - or your representative's - knowledge, according to the HSE.
A material change in circumstances can include an increase in income, the sale of an asset (such as your home), and compensation received as part of a legal settlement.
Asked how often it conducts follow-up reviews of the financial circumstances of an individual who has signed up to Fair Deal, a spokeswoman for the HSE said: "The HSE may at its own discretion review financial assessments at any stage. There is no set time frame for reviews other than reviews in respect of the three-year cap on a person's principal residence - or qualifying farm or business.
The HSE also undertakes a final financial review following the death of the person to ensure that all assets were declared at the date of application. Where it is established that all assets were not disclosed, the HSE is entitled to repayment of the excess amounts of State support over the amount which the person would have received had such non-disclosure or misstatement not occurred."
This repayment would be taken out of the person's estate.
Do your research
Fair Deal can suit some people. "If your only real asset is your principal private residence, you have a moderate income, and if the additional expenses in your nursing home [on top of the weekly fees] are modest enough, Fair Deal may make sense," said Kenny.
However, if you have wealth in addition to the family home, it may be financially wiser to cover the nursing home bills yourself and steer clear of Fair Deal.
"You need to look very hard at the numbers and understand how much of an advantage or disadvantage Fair Deal is," said Kenny. "Be aware of when Fair Deal is not a good deal."
Must-knows on nursing home bills
Tax relief on nursing home fees
It is possible to get up to 40pc of nursing home bills back in tax relief if paying the fees yourself. This means you (or your family) could only have to foot three-fifths of the bill for your nursing home. You need to be a higher-rate taxpayer to get the 40pc rate of tax relief though — so if you are no longer a higher-rate taxpayer when in nursing home care or retirement, get one of your children to pay for the bills (assuming they’re paying the higher tax rate).
Tax relief on nursing home bills is typically claimed at the end of a tax year — but you (or the individual paying the bills on your behalf) may be able to claim the tax relief throughout the year, making those bills more manageable.
“In certain circumstances (such as financial hardship), if you are paying nursing home expenses, you may be able to claim the tax relief during the year,” said a spokeswoman for the Revenue Commissioners. To request this arrangement, contact your local tax office.
When rental income is an option
If you have decided to cover nursing home fees yourself you or your family could rent out any second properties your own — or your home (if it’s vacant). The rental income could then be used to help cover the cost of your nursing home fees.
Transfer assets early on
If you are planning ahead for your retirement and feel that Fair Deal may be for you, it is possible to stop the State getting its hands on some of your assets — through Fair Deal’s five-year look-back rule. This allows you to avoid having assets used to help pay for your nursing home care — as long as those assets are transferred to others more than five years before applying for Fair Deal.
It is not always possible to act early enough to benefit from this rule — particularly if you develop a sudden illness. Get tax advice before transferring any assets. “Be careful about the tax consequences of transferring assets before signing up to Fair Deal,” said Paul Kenny, with the Retirement Planning Council.
“Let’s say that you and your son are joint owners of an apartment — and you don’t want your half share of the apartment to be taken into account when you’re being financially assessed for Fair Deal.
"So you transfer your half-share to your son as a gift. As long as your half-share is below a certain value, your son won’t get hit for gift tax. However, if the value of that apartment has gone up since you bought it, you could be liable for Capital Gains Tax — even though your son hasn’t paid you any money for it.”
Fair deal & college-going children
Should you have a child under 21 who is in college and therefore financially dependent on you or your partner at the time you sign up to Fair Deal, you are likely to have to pay more towards the cost of your care should your child stop attending college after you go into a nursing home.
This is because the cost of providing for your child would have been taken into account when initially determining how much you contribute towards your care.
“In cases where an allowance was provided in respect of a dependent child being in full-time education cease to exist; such cases will require a financial review and must be notified to the HSE,” said a spokeswoman for the HSE.
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