What is the Fair Deal Scheme?
The fair deal scheme is a government financial support scheme where every person will make a contribution to the cost of their long-term case, based on their means with the state paying the balance.
There are currently over 23,000 people who are availing of this scheme. It is also worth noting that 5% of these are under the age of 65 so this scheme is not just applicable to the elderly.
The average length of stay in for people is around three years and the average cost is around €60,000 per annum. Long Term Care costs have historically had a high inflation rate of approx. 5% per annum.
The scheme costs the state €1 billion each year. This budget is capped and the scheme can run out of money, leading to waiting lists for approval for a nursing home place. There have been over 10,000 applications submitted this year.
How does the application process work?
In order to apply for the scheme, you must be an ordinary resident of the state. Ordinary resident means that you have been living in the state for at least a year or that you intend to live in Ireland for at least a year.
Step 1 - There is a care needs assessment that identifies whether you need long term care or not.
Step 2 - This is the application for State Support. A financial assessment will determine the contribution to your care and your corresponding level of financial assessment.
Step 3 - Ancillary state support is the legislative term for the nursing home loan. This aspect of the scheme is optional.
The application form should be completed and signed by the person applying for nursing home care. However, in certain cases, another person may apply on their behalf. Additional documentation will be required to support each application.
How does Financial Support work?
A member of a couple is assessed based on the combined income and assets of the couple.
Your income can include any earnings; pension, social welfare benefits, rent from property, etc.
Your assets can include your family home and any land or other residential property in Ireland or overseas.
|80% of income||40% of income|
|7.5% of Assets||3.75% of Assets|
|€36,000 asset disregard||€72,000 asset disregarded|
|Allowable deductions||Allowable deductions|
|1/5th Min National Contributory Old Age Pension||1/5th Min National contributory Old Age Pension|
There is a ‘look back’ rule where any assets you transferred in the previous five years are taken into account for the financial assessment.
A person’s principal residence value is taken out of the financial assessment after 3 years in care. This extends to farms and businesses in certain circumstances.
Generally, a person’s contribution will be the same regardless of the cost of care in their chosen nursing home.
What are the allowable deductions?
- Income Tax, PRSI, USC
- Local Property Tax
- Medical Card Prescription Levy
- Allowance for child dependents in full time education
- Private Medical Expenses
- Certain Borrowings which stand to be repaid
- Certain Redress Payments
- Rent on the principal residence of the applicant, who has a rental contract, if their partner or child under 21 years of age resides in the property, net of any tax relief that may be claimed.
- Maintenance payments in respect of a child, spouse or former spouse made under a separation agreement or an order of the court.
The HSE reviews the Revenue Schedule of Assets after the client dies in order to confirm financial details. It is a criminal offense to knowingly falsify details.
A single person who needs to go into long term care.
Total Yearly Contribution €18,320
Contributory Pension €12,900
Private Pension Income €10,000
Relevant Assets Local Authority Tenant
80% of Income €18,320
7.5% of Cash Assets (less €36K) €0
7.5% of Principal Residence €0
This person should apply for the fair deal scheme.
A married couple where one person needs to go into long term care.
Total Yearly Contribution €84,260
Contributory Pension €12,900
Non-Contributory Pension (dependant pension) €12,000
Private Pension Income €65,000
Family Home €1,000,000
40% of Income €35,960
3.75% of Cash Assets (less €72K) €10,800
3.75% of Principal Residence * €37,500
*PR is capped at 3 years
This applicant’s income and assets will more than likely exceed the cost of care in the majority of nursing homes. It is unlikely that this person would avail of the support under the fair deal with their current schedule of assets.
You can see from the above example that the Fair Deal Scheme is not favorable for a high net worth client.
Even if the client was to gift or transfer some of these assets (taking into account the five year ‘look back’ rule) so they are not included in the assessment, the Fair Deal Scheme would still be very punitive as the high-value family home is taken into account.
It is worth noting the charge on the family home will only apply for the first three years so the type and length of care should be factored in this decision.
This client has gifted some of their assets 7 years ago in the expectation they will utilise the fair deal scheme. They have also downsized from their large family home.
Total Yearly Contribution Year 1/2/3
Total Yearly Contribution Year 4 and onwards
Contributory Pension €12,900
Contributory Pension Spouse €12,900
Private Pension Income €20,000
Family Home €350,000
40% of Income €18,320
3.75% of Cash Assets (less €72K) 0
3.75% of Principal Residence * €13,125
This client has put some good financial planning in place. Even though the client will have to pay the majority of the care home costs, it would still make sense for this client to apply for the Fair Deal Scheme especially if they expected to be in care for longer than 3 years as the 3.5% charge taken on the family home only applies for the first three years.
What is Ancillary State Support (ASS)?
Where somebody is asset rich and cash poor, it would make sense for them to apply for Ancillary State Support rather than using their savings. This is where the person may not want to pay their full weekly contribution now. They can use ASS to fund their weekly contributions based on a relevant asset e.g. family home.
The ASS acts just like a mortgage where the title to the home must be established and the state takes a lien on the property. The loan cannot be given if the title cannot be verified.
The loan will be paid back on the death of the applicant, sale or transfer of the property, bankruptcy of the applicant or if the applicant gave false or misleading information.
Consumer Price Index (CPI) may be added to the loan repayment amount. Penalties can also be applied where the full repayment of the loan is not made within the specified timeframes.
Repayment of the loan can be made from whatever resources are available. It does not need to be the family home that is sold.
If a partner or certain other family members are still living in the home, they can apply for a deferral and the loan can be collected from their estate after death.
Should I apply for the Fair Deal Scheme?
If you are wealthy it might make more sense to pay for care home costs yourself. If you are paying nursing home costs for yourself or another person you can claim tax relief at the marginal rate.
By carrying out an exercise such as cash flow modelling you can see what impact long term care would have on your overall wealth.
The five year 'look back rule’ will need to be taken into consideration. Any assets formerly owned by the applicant that were transferred to others in the previous five years of applying for the fair deal scheme will be taken into account in the financial assessment of their means.
The fair deal scheme should be factored into your overall financial plan. Consideration should be given around possibly gifting your assets to family members now so they will not be taken into account for the financial assessment in the future. This would also feed into your overall estate and family wealth transfer planning.
The fair deal scheme is not for everybody but it also does not need to be applied for as soon as somebody enters into long term care and it can be applied for down the line so nobody should rule it out as it might make sense as circumstances change.
How to Transfer Assets Effectively?
We previously mentioned that consideration should be given in relation to gifting assets to children now while alive as this will remove the assets from the assessment (once this has been affected more than 5 years ago).
Many clients do not like this idea as they want to maintain some sort of control over their funds while they are alive.
It is possible for clients to set up an investment club with their children as members. This club/investment account can include rules to maintain control over the funds.
Example – Family Investment Account
A family includes two parents and two children.
The parents have €400,000 in Investment Assets which they would like to reduce for the Fair Deal Assessment.
An investment account can be set up with all four members of the account set up as policyholders and the €400K can be transferred in. Each of the four members would be 25% owners of this new account.
€100K will constitute as a gift to each child and this will reduce down their Capital Acquisitions Tax Threshold accordingly. This is currently €335K so in this example, it would reduce their threshold to €235K.
The children will benefit from any growth the account receives and this will not eat into their remaining Capital Acquisitions Tax threshold. Whereas, if the parents keep these funds in their current structure and they grow further, a larger CAT liability will be created for the children down the line.
A rule can be included in the account where any withdrawals will require 3 out of 4 signatories. This will give the parent peace of mind that they can keep some control over the funds rather than just gifting the children €100K in cash where the children would be free to spend it straight away.
The parents could also utilise the small gift allowance each year, and transfer €6,000 to both children (€12K in total) each year further reducing down their cash assets for the fair deal scheme. Gifts in the five years prior to the fair deal application will unfortunately be included in the five year ‘look back’ rule as there is currently no provision in the legislation to apply a disregard for the small gift exemption.
Do you want to find out more?
The Fair Deal scheme is something that should be considered in your overall retirement plan. Contact us if you would like to schedule a meeting where we can discuss the various options available to you to ensure you have a suitable plan in place for your unique circumstances and any eventualities which may arise so you can make informed decisions.