Your home and alternative ways to pay for aged care

November 4, 2021

Anyone who has helped an elderly relative make the move into aged care knows that it can be a traumatic experience. It involves a move from the familiar – a home that a loved one may have lived in for decades – to the unfamiliar, a care facility with many residents and staff. On top of that, there are substantial fees to be paid.

The biggest fee, the accommodation payment, usually exceeds $300,000 when paid as a lump sum. Not surprisingly, when that sort of cash is not available, many people believe the only way to pay this fee is to sell the family home. That prospect can add further stress to the situation.

Fortunately the system allows for much greater flexibility than this. While you can make a lump sum up-front payment, called a Refundable Accommodation Deposit or RAD, you also have the option of paying a Daily Accommodation Payment, or DAP. This is similar to paying rent. Importantly, you can elect to pay any combination of the RAD and DAP to suit your financial circumstances. Depending on your overall financial circumstances, the DAP may prove a viable alternative, to allow for the retention of the family home when going into aged care.

There are a number of reasons why this may be desirable.

While it’s unlikely, knowing that there’s a home to return to, if aged care doesn’t work out can make it that little bit easier and less stressful to make the move. Renting the home will generate an income stream that will help to pay the DAP. If the property market is running hot there’s an opportunity to capture further capital gains on the property. Or there may be estate-planning objectives that depend on retention of the home.

However, with the flexibility comes complexity. Whether you keep or sell your home has income tax, age pension, aged care cost and capital gains tax implications.

For example, keeping the home and renting it may provide additional income to meet aged care costs, but may also create additional taxable income and therefore an annual tax liability, there will be costs associated with keeping the home that must be provided for, rental income may impact Centrelink/DVA payments and aged care fees.  On the flip side, if selling the home, the proceeds will count towards the age pension assets test and therefore may impact on those benefits and in turn may also impact on aged care fees. A RAD is exempt from the age pension assets test, but it is counted as an asset when calculating the means-tested aged care fee. Then there is the decision of what to do with excess funds (which may be left after paying for the RAD) and how best to invest those to ensure future aged care and personal costs can be met.

The need for aged care can arise suddenly and unexpectedly, and while it may not be possible to make detailed plans in advance, it will pay to have a good idea of the options available and their various pros and cons. Our in house Aged Care Specialist, Sonia Dallimore, will be able to help you understand the alternatives available to you.

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The advice in this newsletter is general in nature and does not take into account your own financial objectives, circumstances or needs. You should consider your own personal situation and requirements before making any decisions. If you have any concerns or questions, please contact us.

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