Planning the transition to aged care?
Selling the family home may not be necessary
At some point in our lives, we may be faced with the trials of assisting a loved one into Aged Care. Navigating through the financial maze of fees and finances can seem daunting, not to mention the emotional side of the decision making process. By investing some time to review and plan prior, you’ll be better informed to make these hard decisions.
Considerations before getting started
As a starting point, details of fees, asset assessments, the Health Care and Centrelink systems are required with a decision made on funding the care completed within 28 days of the loved one entering care facility. Planning is important to relieve the pressure of making a rushed decision.
According to the Australian Institute of Health and Welfare 2013-14 report, the average age for entering care is 85.8-years-old for women and 81.6-years-old for men. At that stage of life, retirees have used some of their assets to fund their retirement living and in many circumstances, it would not have been considered to add into the retirement budget funding for aged care fees in 20 years time.
Changes to associated fees
Fees associated with entering aged care have transformed over recent years and prior planning is almost essential. To understand the fees associated with aged care it is necessary to outline these and how they are calculated:
Refundable Accommodation Deposit (RAD) is individually set by each aged care facility and is not dependant on your asset or income circumstances. If unable to pay this deposit in full, the remaining balance is charged at 6.28 per cent (this is referred to as a Daily Accommodation Payment (DAP)).
Means Tested Fee (MTF) is calculated using a formula taking into account your income, investments, your other assets including the family home. There are annual and lifetime caps that apply to this fee.
Basic Daily Care Fee is that maximum of the single Age Pension (less the Pension supplement and Clean Energy supplement) regardless of your asset or income position and is charged at $48.25 per day.
Extra Service Fee individually charged by Aged Care providers to pay for additional care and services.
Your financial situation and your preference on aged care facilities will determine which combination of these fees that you pay. Whilst there are some strategies and financial products available that can reduce the impact on these fees, recent legislative changes have made it more difficult to implement cost minimisation strategies. The most important aspect of anyone entering aged care is ensuring that there is sufficient cashflow to meet the ongoing fees.
The Australian Bureau of Statistics 2013-14 Household Income and Wealth reports point to the average financial investments of someone 75 years or older as $249,900, while the average family home value is $455,300. With Refundable Accommodation costs in excess of these average financial investment holdings, many people believe the best action is to sell the family home to fund these care costs. Whilst the health and welfare of the resident is important and needs to be considered, selling of the family home may not be necessary. This is due to the assessment of the family home for aged care and also the other funding options available.
The Refundable Accommodation Deposit (RAD) if not paid in full will charge the outstanding balance at 6.28% (known as the DAP), however if a lump sum payment has been made, the remaining balance can be funded from that lump sum payment. This will obviously reduce this benefit but it will allow for easier funding rather than selling the home.
How we can help
Your situation may be similar or different, however invest some time prior to entering an aged care facility to look at your options so you are not rushed in making a decision. For further information, contact your local Crowe Horwath advisor.