Help - I want to do the best for my aged father

Elizabeth Basker and her father, George
Age: 90
Lives: in Southsea
Occupation: Retired teacher
Earns: ?14,820 pension
Mortgage: None
Debts: None
Investments: Tessa maturing in May for ?9,600
Pensions: Occupational and state pensions, additional
allowance
Aims: To fund long-term care

Elizabeth basker's father, George, is in a residential home. He suffers from dementia and gets confused. The home is happy to deal with his small physical problems for the time being, but Elizabeth does not know how long he will be able to stay there.

She has power of attorney and wants to be sure she is making the best use of his money. At present his pension does not quite cover his personal spending and the cost of the residential home, £285 a week. Says Elizabeth: 'There is about £50 a month shortfall excluding personal expenditure. I reckon he needs to generate about £2,000 to £2,500 a year for all his expenses.'

The local authority is currently paying the difference: 'The local authority said I could rent out his flat if I chose, but I thought it wouldn't generate sufficient income because you always have to count on months without rent. I thought the only safe way to make sure he has enough money is to sell the property.'

So Elizabeth has put George's flat on the market and hopes to clear about £130,000 when it is sold. She will then repay the local authority and invest the rest of the money to create the extra income he needs.

While he is in the residential home, this is not difficult, but Elizabeth is worried about how he will manage financially if his physical health deteriorates and he needs to move into a nursing home.

'He is on the boundary of getting towards needing nursing care,' she says. 'It is the nature of his disease that he is going to deteriorate. But is he going to die at that point or will he continue for a while and need to go into higher-level care?'

She reckons this will almost double his care costs. Apart from the cost, she wants him to remain in the residential home: 'He is happy where he is and knows the staff. The home is doing wonders with him. But he could deteriorate physically as well as mentally.'

Having power of attorney involves a legal obligation to put the beneficiary's interest first. 'It is not my money,' says Elizabeth. 'On the other hand, obviously it is potentially my inheritance, too, so I want to protect the capital as far as possible.'

She is keen for advice. 'I don't know what the future holds,' she says. 'I'm as unsophisticated about money management as they come - a sock under the mattress is about my level of financial understanding.

'I would particularly like to know what happens if he has investments that are tied up for a number of years under penalty and he dies within that time.'

Adviser 1: Philip Spiers

Once the flat is sold, George will have enough
income to pay for residential care and should still
see his money grow. Nursing home care is likely
to eat into capital, although buying a care plan
could minimise the impact.

An immediate-need care-fees payment plan at his
age will cost about ?22,000 and provide ?700 a
month increasing at RPI plus 2 per cent a year for
life, paid tax-free direct to the care home. When
he dies there will be no money for his estate -
protecting half the capital costs an extra 15 per
cent.

Because of the future uncertainty, Elizabeth
should keep the investments flexible. When the
flat is sold, she should keep ?30,000 in a
high-interest postal deposit account at 3.5 per
cent and retain the Tessa in a follow-on account,
around 4.5 per cent. This provides a contingency
fund for a care-fee plan.

She can invest ?3,000 in a mini cash Isa at up to 5
per cent and ?97,000 in low- risk investment bonds
with no penalties on death and a death benefit
guarantee to ensure the estate receives no less
than the original investment. She can take
regular withdrawals of up to 5 per cent a year
from the bonds to supplement his income.

If he needs nursing care, George should be
entitled to a registered nursing contribution from
the NHS equivalent to ?70 per week.

Philip Spiers is a partner in the Oxford-based
Nursing Home Fees Agency.

Adviser 2: Graham Fidoe

George's income plus interest on the proceeds
of the flat may take him close to the 'age
allowance trap'. Income above ?17,600 in 2001/02
reduces the age allowance, giving an effective
tax rate of over 30 per cent.

If his income shortfall rose to around ?15,000 a
year, he would be eligible for 'free nursing care'
at ?35, ?70 or ?110 a week, which reduces the
shortfall. Though those suffering from dementia
may not qualify for the full allowance because
they often require personal rather than nursing
care. I suggest that Elizabeth ask his present care
provider if they could keep him longer by
bringing in specialist help.

She could invest the proceeds from the flat to pay
the fees or buy an immediate care-fees plan.
Buying insurance leaves less to invest, but
enables her to take a long-term view on investing
the balance, perhaps allocating some to an Isa
and to growth funds. If the benefits of an
immediate care-fees plan are paid direct to a
recognised care provider, they are not taxed as
income.

Without an insured care- fees plan, investments
should be restricted to accessible deposits and
low-risk funds to pay fees as they fall due. The
maturing Tessa capital can be held in a
Tessa-only Isa, and she could put a modest
amount in a two-year National Savings certificate.

Graham Fidoe is a director of Nuneaton-based
Morton Wilson.

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