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Aged Care is an extremely complex area but planning ahead and obtaining professional advice and help you make the best financial decisions for your loved ones. Below are the answers to the most commonly asked questions about Aged Care.
As people live longer, an ever increasing number will end up in aged care. The number of people in permanent aged care in Australia is expected to triple in the next 35 years, from 225,000 today to 700,000 in 2050.
The aged care industry is very complicated and many decisions must be made, often involving large sums of money.
The following is a list of the most common questions that we hear, and the answers to them.
1. Why is aged care so expensive?
A: Aged care is very labour intensive, and land and buildings are expensive to buy and maintain. The owners of such facilities expect to make a return on their investment. From a client’s point of view, typical fees include accommodation deposits and charges, daily fees, extra services fees and means-tested fees.
2. Is the accommodation deposit negotiable?
A: Yes. Accommodation deposits (known as RADs or Refundable Accommodation Deposits) can be as high as $2 million to secure a bed in an aged care facility. In many cases, these RADs are negotiable and at times can be as much as halved. Willingness to negotiate on RADs depends very much on the demand for beds – and the supply of beds – in a particular aged care facility.
3. What alternatives are there for paying the RAD?
A: Many aged care facilities prefer the RAD be paid as a lump sum up-front. However, it is possible to choose to pay interest payments only or pay with a combination of lump sum and interest payments. A bank guarantee is not an alternative.
4. Will the family get all of the RAD back?
A: In a government accredited aged care facility, the accommodation deposit is fully government guaranteed. Before July 2014, the accommodation bond repaid to the family would be reduced by retention amounts deducted by the aged care facility. Since July 2014, any lump sum paid as a RAD is now generally repaid in full, 14 days after a person leaves the facility, or where the resident has passed away, to their estate when probate has been granted.
5. Why does the Government charge different daily care fees to residents?
A: The standard daily care fee for a resident in an aged care facility ($49.42 per day) is set at 85 per cent of the full Age Pension. All residents must pay this fee. However, it does not cover the full care costs of the resident. The Government may ask the resident to pay an additional amount as a means tested fee and then pay a subsidy for each resident’s care needs to make up any shortfall.
6. What is the Means Tested Fee?
A: The means tested fee is set by the Government and collected by the aged care facility based on an individual assessment for each resident. It is an attempt by the Government to ask residents with the financial capacity, to contribute to the cost of care. This fee can range from nothing to a maximum $245.62 per day.
7. Why is the Means Tested Fee so high and how do I reduce it?
A: The Means Tested Fee is based upon the income and assets of the aged care resident, so it increases as the resident’s assessable assets and income increase. For example, a resident on a part Age Pension with assets totalling $200,000 and deemed to be earning $28,312 per year, will pay $1.97 per day ($719 per year) in aged care, while a resident with assets totalling $1.2 million and deemed to be earning $38,247 per year, will pay $67.02 per day ($24,464 per year). One option to reduce the Means Tested Fee is to buy an aged care annuity, if appropriate.
8. What is the Extra Services Fee and should I pay it?
A: The Extra Services Fee, which can be as much as $120 per day, is supposed to give the resident extra services, including more activities and access to additional services like podiatrists and hairdressers. If your aged care facility is charging an Extra Services Fee, you should ask what services are being delivered and assess whether or not you are receiving value for money.
9. Paying daily fees will impact on my cash flow. What strategies are there for dealing with this?
A: It is possible to negotiate to pay some or all of the daily fees from the RAD to minimise the impact on your cashflow. This means, of course, that less of the RAD will be returned at the end of the care period.
10. What implications are there for my social security or pension?
A: The RAD is an excluded asset for social security purposes. Therefore, in some cases, where existing cash is used to pay for a RAD, it can result in a new or increased pension entitlement. More often, a family home is sold to fund the RAD. In this case, while the home is excluded, the proceeds from its sale are counted as an asset. As a result, the cash remaining after paying the RAD can often result in a pension being reduced or lost entirely. However, there are ways to maintain, or even increase, one’s current entitlements.
11. Will I need to sell the family home to pay the RAD?
A: Not necessarily. Four key questions are:
- Do you need to sell the home?
- Can you afford to keep it?
- What happens if you rent it out? and
- Will your decision have an impact on any pension or aged care fees?
The family home is often a couple’s most valuable asset and many people wrongly assume that it needs to be sold to provide funds for RADs. The key driver is to make sure that, like any valuable asset, the home generates a financial return. This return takes the form of rental income and capital growth (which RADs certainly don’t provide). The home is treated on a concessional basis for the Age Pension and aged care fees.
For Age Pension purposes, if you move into care the former home’s value will be excluded from the Age Pension assets test for two years, although any rental income will be assessable under the income test. The value of the home is capped at $162,815 for aged care means testing and any rental income is assessable.
Source: Money and Life by the Financial Planning Association of Australia