Written by Hilary Cragg | Care Support Team | 12 November 2024

When planning for long-term care, many families face difficult financial decisions. Two of the most common options are Deferred Payment Agreements (DPAs) and private funding, each offering distinct benefits and challenges. Choosing the right approach depends on your family’s financial situation, long-term goals, and comfort with the risks involved.
As you explore these options, it’s essential to understand the complexities that come with DPAs, in particular. Although DPAs can be an invaluable tool for families who wish to defer care home costs, they often come with intricate terms, eligibility requirements, and financial implications that can be difficult to navigate alone. This is where the support of an experienced solicitor becomes crucial.

Working with a solicitor skilled in elder care law and financial planning, like Hilary Cragg at Nash & Co Solicitors, can make a significant difference. Here’s why expert legal guidance is highly recommended for anyone considering a DPA:

Comprehensive understanding of eligibility and terms: DPAs have specific eligibility criteria that vary by local authority, and it’s easy for families to overlook important details that could affect their qualification. A solicitor can clarify these requirements and ensure that all necessary documents and property ownership information are correctly presented. This support helps reduce the risk of complications or delays, allowing the process to move forward smoothly.
Clarity on financial commitments: Many families enter DPAs without fully understanding the long-term costs involved. A solicitor can review the interest rates, administrative fees, and repayment terms to provide a transparent picture of the total financial commitment. This insight is invaluable for families who want to weigh the true costs of a DPA against alternative funding options, such as private funding.
Protection of assets and inheritance: Because DPAs often require a legal charge on the family home, they can impact future plans for property inheritance and estate management. Solicitors specialising in elder law can advise on how a DPA might affect inheritance and provide strategies to minimise impacts on family assets. This ensures that families can make informed decisions that protect their financial legacy.
Avoiding costly mistakes: Errors in the DPA application or misunderstandings about repayment terms can lead to unexpected costs or complications down the road. A solicitor brings a detailed, professional review to each stage of the process, helping families avoid common pitfalls, from missed documentation to misunderstandings about repayment timelines.

Hilary Cragg at Nash & Co Solicitors explains, “Deferred Payment Agreements are powerful tools, but they require careful consideration. Having a legal professional by your side can provide peace of mind, as we help clients understand every aspect of the agreement and ensure they’re making the best choice for their family’s future.”

Engaging a solicitor with expertise in DPAs gives families the confidence that they are entering a fair and beneficial agreement, with full knowledge of the responsibilities involved. Whether you ultimately decide on a DPA or opt for private funding, the guidance of an experienced solicitor can offer clarity, protect your assets, and simplify the process.

1. Understanding Deferred Payment Agreements (DPAs)

A Deferred Payment Agreement (DPA) is a financial arrangement offered by local authorities that allows individuals to defer care home fees by securing the costs against their property, typically the family home. Instead of paying upfront, families can defer these fees, which are repaid at a later date, often when the property is sold.

Key features of DPAs:

Interest and Fees: Most DPAs involve interest charges on the deferred amount, which may accumulate over time. Administrative fees are also common, covering costs like setup and ongoing account maintenance.
Eligibility: DPAs are usually available only to those with limited savings and assets aside from their home. Families with significant savings may not qualify.
Security Requirement: The deferred payments are secured against the family home, meaning the local authority will place a charge on the property to protect the funds owed.

When to consider a DPA

DPAs are often a good choice if your family prefers to keep the family home during the individual’s lifetime and would rather delay large payments until the future. They can also be advantageous if liquidating other assets is not desirable or feasible.

2. What is private funding for care homes?

Private funding involves using personal savings, investments, or other assets to pay for care home fees directly, without deferring costs. This approach allows families to manage payments independently and can provide more flexibility in terms of property use or future estate planning.

Key features of private funding:

Immediate payment: Private funding requires upfront payment, which may be challenging for families with limited cash reserves.
Flexible asset management: Families can choose which assets to use, whether savings, pensions, or other investments, providing more control over the process.
No debt or interest accumulation: Unlike DPAs, private funding doesn’t involve interest charges or administrative fees, as payments are made directly and immediately.

When to consider private funding

Private funding can be ideal for families who have sufficient assets or income to cover care home costs directly. It may also be a better fit for those who wish to avoid debt or don’t want to place a charge on the family home.

3. Comparing the costs: which option is more affordable?

Costs of Deferred Payment Agreements: DPAs are generally structured to defer payments until the sale of the property, but this comes at a cost. Local authorities typically charge interest on the deferred amount, which can vary depending on current market rates. Over time, this interest can significantly increase the total amount owed. Additionally, administrative fees may be applied, which add further to the cost.

Hilary Cragg, Solicitor and Partner at Nash & Co Solicitors, advises families to carefully review all associated costs with a DPA: “Interest rates and fees can make a significant difference to the final amount payable. It’s important to know the full scope of these costs upfront so you can weigh them against other options.”

Costs of private funding: With private funding, families avoid the accumulation of interest and administrative fees. However, using savings or investments for care home fees may impact other financial goals, such as leaving an inheritance or maintaining a retirement fund.

While private funding avoids the costs associated with DPAs, it requires liquid assets or other resources that can be readily accessed. Families need to assess whether their cash flow or asset portfolio can comfortably support these ongoing expenses.

4. Flexibility and control over assets

Flexibility with Deferred Payment Agreements: One of the primary benefits of a DPA is the ability to keep the family home while deferring payments. This can be beneficial for those who want to retain the property for future use or inheritance purposes, at least for the short term. However, since the local authority places a charge on the property, families will eventually need to address this debt, often by selling the property after the individual’s passing.

“DPAs give families breathing room, allowing them to manage finances without an immediate sale of assets,” Hilary explains. “But it’s essential to consider that the property will likely need to be sold or refinanced in the future to repay the deferred amount.”

Flexibility with private funding: Private funding offers more control over how assets are used and doesn’t involve any third-party liens or charges. Families can choose to pay from various sources—such as savings, pensions, or liquidated investments—without restrictions on which assets must be used. This flexibility is appealing for those who want to keep the family home free from debt or for those with diverse financial portfolios that can cover care fees.

With private funding, families have the freedom to choose how much and when to pay, without the constraints of an agreement.

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5. Risks and considerations of each option

Risks of Deferred Payment Agreements: While DPAs provide financial flexibility, they come with certain risks. Interest rates can rise over time, leading to a higher final repayment amount. Additionally, the requirement to place a charge on the family home means that beneficiaries may need to sell the property to cover the deferred fees.

Another consideration is eligibility. Since DPAs are subject to strict criteria, families may find that they don’t qualify if they have significant savings or other assets. The application process can also be complex, and it’s important to ensure all property details and ownership arrangements are accurately disclosed to avoid complications.

Risks of private funding: Private funding requires readily available financial resources, which can place pressure on a family’s overall financial health. Using substantial savings or investments to pay for care fees might affect retirement plans, inheritance goals, or other financial priorities.

Families relying on private funding should also account for the possibility of rising care costs over time, which may require adjustments to their financial plans. It’s essential to have a buffer or a flexible investment strategy in place to meet these potentially increasing costs.

6. Practical advice: making the best choice for your family

Choosing between a Deferred Payment Agreement and private funding depends on your family’s unique circumstances and priorities. Here are some practical considerations to help guide your decision:

Evaluate your financial goals: Consider what is most important for your family’s future—whether it’s retaining ownership of the family home, preserving savings for inheritance, or avoiding debt.
Consult a financial or legal expert: A professional can provide valuable insights into the long-term implications of each option, helping you understand how a DPA or private funding could impact your estate and financial health.
Calculate the long-term costs: Compare the potential interest and fees of a DPA with the opportunity cost of using savings or investments for private funding. Understanding the true financial commitment of each option can clarify which is more feasible for your family.
Consider future flexibility: Think about whether retaining flexibility in your assets is important. Private funding may offer more immediate flexibility, while DPAs can defer large payments until a future date.

Hilary Cragg adds, “Every family’s situation is different, so it’s essential to weigh the practical aspects of each option. Don’t rush this decision—it’s worth taking the time to review all options carefully and make the choice that best supports your goals.”

Summary

Deciding how to fund long-term care is a significant decision, and it’s one that deserves careful consideration. Deferred Payment Agreements and private funding each have their own advantages and potential drawbacks. By understanding the differences in costs, flexibility, and risks, families can make a decision that aligns with their unique financial circumstances and future goals.

If you’d like more guidance on DPAs or help assessing the right funding strategy for your family, we encourage you to reach out to Hilary Cragg by email at hcragg@nash.co.uk or you can call her on 01752 827047. Hilary provides personalised advice and support to help you navigate this complex decision with confidence.

Deferred payment vs private funding: Choosing the best care home option for your family