Take care with aged care

Wealth Management Insights

The older generation has worked hard and are often frugal by nature. Not surprisingly they have exhibited a strong tendency to save for later life.

Travel and comfortable living are often the main goals and after this the costs of retirement tend to diminish.

It can be rather ironic that in the final years the cost of aged care can be very expensive. It could even be said that the most frugal pay the greatest share of these costs. One potential cost of aged care and sometimes the most feared is the accommodation payment.

If you are required to pay for your accommodation, you will have three choices of how to pay:

Accommodation costs are entirely separate from basic and means tested care fees that we have discussed in previous articles.

  1. The first method is lump sum called ‘refundable accommodation deposit.’
    This will be refunded in full when you leave the aged care home. The maximum price a provider can charge is currently $550,000.
  2. The second choice is a regular rental-type payment, known as the ‘daily accommodation payment’ which is a maximum of $100 per day.
  3. The third choice is a combination of both.

Accommodation payments are subject to both an income test and assets test.

Let us examine an example of how much one retired farmer will contribute to accommodation payments.

You will recall Gerard is single with two adult children and is suffering from dementia. He owns his house in Ballarat, has other assets of $120,000 and gifted his $1.5 million farm to his farming son two years ago. His intention is that all of his non-farming assets will pass to his daughter who has no involvement in farming. Gerard's income and deemed income exceeds $30,000 per annum.

Gerard will have to pay all his own accommodation costs. Let us also assume that his daughter is his financial guardian and negotiates a refundable lump sum accommodation deposit of $300,000 or $54.55 per day.

His daughter can then choose either to pay the $300,000 which will be refunded when he leaves or $54.55 per day which is not refundable. Of course she can choose a combination of these methods, but again only the lump sum is refundable. As we indicated in my last article, there will be some interesting discussions between Gerard's children as to who will be contributing their intended inheritance to both of Gerard's basic and means tested care fees together with his accommodation payments for an unknown period. There may be some exemptions from the means test resulting in lower costs overall and the children will need to get the best advice.

The person holding the financial power of attorney is going to be faced with negotiating with aged care providers unless the person receiving aged care has very few assessable assets and a modest income.
Understanding the complex fee structure for all components of aged care costs will be challenging even with the advice from industry specialists.

And just to keep us all on our toes, the federal budget announced further changes if Gerard entered aged care after 1 January 2016 and rented out his former home.

This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.
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