Aged Care and the family home

Michelle Bromley CFP®, Director – Strategy and Advice

While a key component of Australia’s Aged Care ‘Living Longer Living Better’ policy is to support older Australians to remain in their own homes longer via home care packages, for those with higher care needs, entering a residential Aged Care facility can provide the care and support needed to maintain quality of life.

However, a common concern about entering a residential Aged Care setting is how the resident’s former home will be assessed for determining their accommodation contribution, and whether the home will need to be sold to fund the cost of accommodation and ongoing care.

Further, Social Security benefits may be impacted depending on whether the former home is retained or sold.

What costs are involved in Residential Aged Care?

There are both upfront costs for accommodation and ongoing costs charged for care services.

Upfront costs

While those with very limited means may be offered a government subsidised room in an Aged Care facility, most Aged Care residents will be asked to pay towards the cost of their accommodation.

Those eligible for a partially subsidised room may be asked to pay a contribution toward the cost of accommodation by way of a periodic payment (based on a daily rate).

Those with means will be asked to make a payment based on the cost of their room. The resident has 28 days to decide how to pay for their accommodation, from one of the following three options:

  • A single lump sum payment, known as a refundable accommodation deposit (RAD). Payment must be made within 6 months. While the RAD remains unpaid, the cost of accommodation must be paid as a DAP (see below).
  • A rental-style periodic payment known as a daily accommodation payment (DAP) – this is any outstanding RAD amount multiplied by the maximum permissible interest rate (currently 4.04%pa).
  • A combination of these two methods.

The Aged Care facility must publish the cost of their rooms, showing at least one example for each of the above methods to allow residents to assess which payment method best suits their circumstances. The facility cannot accept a RAD that will leave the resident with less than the permissible asset amount, which is currently $51,500.

To ensure that costs are reasonable and provide value to residents, the Aged Care Pricing Commissioner must approve any RAD (or equivalent DAP) of more than $550,000. They also approve changes to extra service fees charged for additional services provided by the facility.

Ongoing Costs

The resident may be asked to pay a combination of fees for the provision of ongoing care, including:

  • A basic daily fee of $53.56 is payable for all residents to cover the cost of daily living.
  • A means-tested care fee of up to $28,792.36 pa. The means-tested care fee also has a lifetime cap of $69,101.75 beyond which a resident will not pay any more in means-tested care fees.
  • Extra service or additional fees charged by the facility where the resident chooses a higher standard of accommodation or services.

The means tests

Services Australia applies a calculation that converts the resident’s income and assets to a daily rate referred to as the ‘means-tested amount’ which determines what level of subsidisation and means-tested costs will apply to a resident’s situation.

Generally, a resident whose means-tested amount is less than the government maximum accommodation supplement (currently $59.49) will be considered low-means and qualify for some level of government subsidisation.

A resident whose means-tested amount is above the maximum accommodation supplement, or who declines to disclose their income and assets to Services Australia, will not receive a government subsidised room and will also need to pay the means-tested care fee.

Assessing the home for Aged Care means testing

The former home will be exempt where it is occupied by a protected person, such as the resident’s spouse.

Others, including dependent children under age 16 and full-time students under age 25, or a carer or close relative who also receive government income support and have resided in the home for a specified period, are also protected persons.

Where the home is not occupied by a protected person, whether the home is vacant or rented out, the value of the home up to the ‘home exemption cap’ which is currently $175,239.20 will be included in calculation of the means-tested amount for determination of Aged Care fees.

If the resident entered Aged Care after 1 January 2016 any rental income from the former home will also be assessed in determining the means-tested amount.

Social Security Treatment of the home on entry to Aged Care

On entry to Aged Care, the resident’s former home will be exempt from the assets test for as long as their spouse continues to live in it.

For singles, or where the resident’s spouse has also entered Aged Care, the exemption continues for a further two years. Thereafter, the home is assessed under the assets test and the non-homeowner asset test limits apply.

For those who enter Aged Care from 1 January 2017, any rental income will be included in the income test from the time the property is first rented.

How is the RAD treated under means testing?

The RAD is an exempt asset for Social Security means testing. It is neither included in the assets test nor is it deemed as a financial asset. Paying a RAD from financial assets can therefore reduce the Social Security recipient’s assessable assets and may result in a higher rate of Social Security benefit such as Age or DVA pension.

However, the RAD paid is included as an asset when determining means-tested Aged Care fees, even if funded from debt such as a reverse mortgage or borrowing from family. Paying a large RAD can therefore result in a higher means-tested care fee.

Will the house need to be sold?

Whether the resident’s former home needs to be sold to fund their cost of entry will depend on their personal circumstances, including their level of income and whether they have other financial assets that could be used to meet costs.

It may be desirable to retain the home on entering residential Aged Care, particularly where it is occupied by a protected person, to provide the resident with an opportunity to go home – whether for short stays or a longer-term return to home care, or to avoid a forced sale during depressed housing market conditions.

As the home remains exempt from Social Security means testing for up to two years, it may be beneficial to retain it during this time to maximise benefits.

The options for meeting the costs of accommodation and care may then include:

  • To use other liquid assets, including deposits, investments, or superannuation, to pay a part RAD and part DAP.
  • Elect to pay the DAP by progressively deducting it from the RAD. Any RAD amount remaining after deducting the DAP is refundable.
  • Rent the home out to help fund the DAP.

Family members should approach the idea of paying for a loved one’s Aged Care costs with caution. Paying the RAD for a family member will increase the resident’s assets for assessment of meanstested Aged Care fees, and the RAD is refundable to the resident or their estate – not to the party who actually paid for it. A formal loan agreement can ensure that the relative who lent the money is repaid.

However, means-tests do not consider regular payments made by relatives towards the DAP or other care fees.

Conclusion

If you are looking to move into an Aged Care facility, specialist financial planning can assist you to understand how to meet the likely costs in an effective way to suit your circumstances. Contact your adviser for a further discussion about obtaining specialist Aged Care advice.

So please do not hesitate to phone your adviser if you need assistance.

To speak to our client services team, please call 1800 064 959 or click here to contact us.

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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