Ted & Joan: a case study

Background

Ted and Joan are 80 years old. They enjoy a gentle pace of life now, having travelled the world through Ted’s service in the Army. Their health is ok, but Joan suffers with back pain and Ted has high blood pressure. Ted recently suffered a mild stroke.

They would like to review their finances as they are downsizing and moving into a retirement complex in three months. They bought off-plan for £400k and hope this will be their last move. They want to get their finances and estate planning in order. They do not have any investments, but have savings of £75k and they expect to release equity of £250k from the sale of their home.

Ted and Joan would like advice on what to do with the equity being released from their home. We determined they do not want to take any risk with their savings and prefer bank deposits.

Ted is concerned that should he die first, Joan will be left without adequate pension income. Their pension income totals £50k p.a. made up of Ted’s Army Pension, and their State Pensions.

They have read about Inheritance Tax (IHT) and are not sure if any will be due when they die. They want their children to inherit all their assets, and do not like the idea of money going to the taxman.

Approach

We met over two months to fully understand Ted and Joan’s plans and confirmed the details with them. We explained the death benefits of Ted’s Army pension and how Joan would receive a Widow’s pension of 50%. Together with State Pension this would provide Joan with a pension income of broadly £25k p.a. in the event of Ted’s death, which was a relief to them both.

We recommended that the proceeds from the sale of the house should be held mainly in Joan’s name as she is a non-taxpayer. They should be spread across a range of deposit accounts limiting the amount to £85k per banking group, per person. That’s because The Financial Services Compensation Scheme (FSCS) protects customers from losing their money if an authorised financial services firm were ever to go bust, but it only protects up to £85,000 of savings per individual, per financial institution.

We explained that the cost of care varies depending on your needs. For example, if residential care is required, the average cost of care in a residential care home is currently £33,852 a year, or £47,320 a year when nursing care is included*.

 However, the cost for care in your own home is significantly less and could be met from their pension income.

Based on current rules, their property could not be sold if one of them required care, because the other would still need somewhere to live. In addition, only savings in the name of the person requiring care would be assessed.

Outcomes

We met all of Ted and Joan’s objectives, providing them with peace of mind that their financial future was secure.

We confirmed there will be no Inheritance Tax due when one of them dies as assets can be passed between spouses without the need to pay tax. We also confirmed that their total assets came to £725k, which is within the new Inheritance Tax allowance of up to £1m for a couple. That also means, under current rules, when they both die, they can leave their entire estate to their daughter, tax-free. 

Ted and Joan have an up to date Will, but have not made a Lasting Power of Attorney (LPA). We advised them to make an LPA (with a solicitor) because in the event they cannot manage their own finances, their appointed attorneys could help.

They agreed to appoint each other and their daughter as she lives locally and already helps with online billing.

We recommended a local Solicitor to draft their LPA and agreed to review their financial plans again when their savings accounts mature. Ultimately, our advice put Ted and Joan’s minds at ease regarding their financial future.

* Laing and Buisson Care of Older People Report 30th Edition 2019</span