The need for residential aged care is often sudden and decisions must be made with a sense of urgency. It is an emotional time for families, who have to deal with the complexity of the aged care system and the combination of these factors can easily cause families to make rushed decisions, without a full understanding of the consequences.
The Australian government introduced the Living Longer Living Better reforms to the aged care system, which commenced on 1 July 2014. The reforms included changes to home care and residential care, which have further increased the complexity of the system. Now, residents have more choice, but equally, those with greater means must pay more for their care. It is more important than ever to seek advice before making decisions. Proper planning will help you avoid the traps and pitfalls, inherent in the system.
Several issues can trip you up when you decide for your loved ones about their financial matters. Here is a quick look at some complexities that most commonly have to be addressed.
The former home
Many of our clients are conflicted over what to do with the primary residence and how to make sense of the trade-off, selling the property versus keeping and renting the property. Sometimes, keeping the home makes financial sense. Often, the person entering care wants to keep the home for non-financial reasons; for many, the home is the last symbol of their independence, and consider that in keeping the property, they are keeping a back door to go “home” if their journey in aged care does not work. If the spouse continues to live at home, the property is exempt from inclusion as an asset for the aged care fees or aged pension. If there is no spouse, then a different set of criteria are applied. By contrast, selling the house might create a sudden injection of assessable assets. Sometimes, the special exemption makes keeping and renting the home an attractive proposition.
Paying the RAD
Should you pay the full refundable accommodation deposit (RAD) or should you pay part and keep an amount unpaid and service it via periodic payments? If so, how much should you pay? What conditions lend themselves to paying the full RAD, and by extension, what conditions are better suited to paying a partial RAD?
Help from family members
Some people want to explore the option of giving (or lending) money to their aging parent to fund their accommodation costs. Remember, RAD is an assessable asset for calculation of aged care fees, i.e. by lending money to parents to pay for accommodation costs, you might increase their Means Tested Care Fee. This applies, even if the family has drafted a formal loan agreement with the resident. Another problem may be caused by the RADs being refunded (after death of the resident) to the estate. There are no options to refund the RAD or part of it to a person who may have loaned money. The estate will be distributed, according to the will and in the absence of a will, according to intestacy laws of the state. What are the consequences for the person who lent the money if only a part RAD has been paid and where the daily accommodation payment (DAP) is drawn from the RAD? The amount refunded to the estate will be lower than the initial amount paid. Although well intentioned, lending money to the family member going into care may have several unintended consequences.
Supported resident status
Could your loved one qualify as a supported resident? What will this mean for their chances of finding an aged care home and for the costs of their accommodation? Do you know what mechanisms there are to ensure you reduce your assessable assets to the level where you can qualify as a supported resident and exactly how much you may need to re-arrange in the process? Residents, who might qualify as supported residents, may lose the opportunity by jumping the gun and completing the SA457 too soon.
Evaluating which assets to redeem
Some residents may have a portfolio of assets, which they can convert to cash to pay their accommodation costs. They need to weigh which assets are best to liquidate for accommodation costs and which are better to retain for income to cover ongoing costs of care. There may be advantages to selling some and keeping others. Often, when confronted by this dilemma, we don’t know the answers until we have run the analysis and ‘crunched the numbers’.
Chris Nothing is an accredited aged care professional who specialises in helping families navigate the complexities of the aged care system. The excerpt above comes from his recently published e-book: Doing the Right Thing by Mum and Dad: Residential aged care for a loved one, which is available from Amazon.com.au via this link.
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