Aged Care Case Study

When the health of a loved one declines, there are many things to consider and certainly obtaining a good level of care for that person is one of the items at the top of the list. Care for a loved one can range from additional support at home to a significant change in their accommodation needs via relocating to an Aged Care Facility. Rules surrounding Aged Care Facility fees, and the decision of whether or not to retain the family home can be complex, and you may require the services of a financial adviser to help determine the optimal solution.

Case Study
Joan is age 87, widowed, and sold her house for $1,200,000 net proceeds in November 2017. She has $92,000 additional in cash funds and is currently residing in an Aged Care Facility.

This example illustrates the complexity of aged care fees and gives an idea of the number of factors to be considered when someone is considering entering into Aged Care.

Aged Care Fees
The below table illustrates the different options Joan has to pay as a result of selling the home and choosing to make a Refundable Accommodation Deposit (RAD) vs. no RAD paid:

Basic Daily Care Fee
This is a standard fee and is calculated at 85% of the maximum single Age Pension.

Means-Tested Care Fee
This is calculated based on an Income Test assessment + Assets Test assessment, minus the set Maximum Accommodation Supplement. The Accommodation Supplement is payable on behalf of residents receiving permanent residential aged care who do not have the capacity to contribute to all or part of the cost of their accommodation. Annual and lifetime caps are applicable for the means-tested care fee.

Daily Accommodation Payment / Refundable Accommodation Deposit
Because Joan is above the Maximum Accommodation Supplement based on the asset test assessment, she has the option to pay the Accommodation Payment as a Refundable Accommodation Deposit (RAD) of $500,000 (varies depending on nursing home), or as a Daily Accommodation Payment (DAP) of approximately $78.

Compensation payment/Hardship supplement/Additional services fees
Joan will not satisfy for requirements of Compensation payment of Hardship supplement (given she is self-supported and can afford her accommodation costs) but may choose to pay an Additional services fee for items above those provided in the Basic Daily Care Fee (i.e. Pay TV etc.).

How long until a person has to pay the RAD?
A resident has 28 days from the date they enter the facility to decide how to pay for their accommodation. If they decide to pay a RAD, they have 6 months to pay. A resident must pay a DAP until a RAD is paid, and can decide to pay a RAD at any time (in which case the DAP would cease).

Do I sell or keep my home?

The first reaction a lot of families have is to sell the family home and use the funds to pay the RAD. For the purposes of Age Pension, the person is now considered a non-homeowner and the age pension is reduced or even lost altogether due to the recent changes in the assets test. For aged care purposes, the RAD is included, and the reduced age pension and means-tested care fee (plus the daily care fees) may leave a significant cashflow shortfall that must be funded from other assets or the family.

If instead, the family rent the house out and partially pay the RAD, the net rent is included for aged care fees and the value of the home is capped at a set amount ($162,087.20 as at 20/03/2017). This may result in an increase in the aged care fees, but this is often offset by the rental income received from the former home. For the purpose of Age Pension, the value of the home is exempt from the assets test for a period of time.

To determine the optimal financial outcome, it is important to “do the maths” as the optimal outcome will differ based on the individual’s circumstances, the value of their home and any other assets or income.

Adriana Brink AFP® BFinPlan/BAcc, is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.

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