Downsizing & Alternatives
Yesterday I met with a new client of Fair Deal Advisors Limited who has recently gone through the Fair Deal application and qualification process. Unfortunately, when our client began the application process, Fair Deal Advisors Limited did not exist so they went through the process without advice and on their own.
We are now working with the client as they are considering selling the family home (valued at €800,000) with a view to the wife of the nursing home resident using the sale proceeds to acquire a smaller more manageable home. The family have asked us to advise them on the consequences of downsizing and any alternatives that they should consider.
Our Advice
Securing the most appropriate lifestyle for the lady in question is the priority for the family and as such, it is preferred that their mother should proceed with selling the family home and securing a smaller more appropriate new home.
In selling the family home and using only part of the proceeds (say €400,000) to acquire a smaller new property, the lady will be effectively converting approximately €400,000 in value from a fixed illiquid property (the family home valued at €800,000) into €400,000 of liquid cash assets together with a smaller illiquid property asset.
In the case of a couple, where one partner remains at home, the Fair Deal Scheme rules demand that 3.75% of ALL liquid assets be contributed each year as part of the personal nursing home fee contribution (minus the €72,000 allowable deduction for couples). This means that the €12,300 p.a. (i.e. €400,000 – €72,000 x 3.75%) nursing home fee contribution that had been deferred through the Fair Deal Scheme through the family home asset will now become immediately due for payment towards the total nursing home fees. We are working with the family to look at ways of using this to their advantage. In addition, the resident will be liable to contribute a further 3.75% of the new smaller property value. This contribution will continue to be deferred under the Nursing Home Loan.
It also means that if the nursing home resident lives beyond 3 years, the cap on personal contributions of only 3 years that applied to the original family home property (valued at €800,000), will no longer apply. The €12,300 p.a. contribution towards the nursing home fees will now become a liability for the lifetime of the nursing home resident.
The issue of selling the family home, causing part of its value to become liquid and thus immediately liable to be contributed towards the cost of the nursing home fees, has caused the family to reassess the suitability for the family of the Fair Deal Scheme overall. We are now working with the family to compare alternative funding options that can present a more beneficial long-term financial option for the family.