Aged care – making an informed decision

It can be difficult to plan, either financially or emotionally, for the move into an aged care facility. When the time comes you may find yourself being confronted with a complex range of questions and decisions.

Seeking financial advice from an aged care specialist during this time can ensure that the decisions that you and your family make will be the right decisions whilst taking into consideration the impact to your financial situation, age pension entitlement and aged care costs. Making the wrong decision could result in a loss of age pension, increased aged care costs and a reduced estate to be passed onto the next generation.

First steps

To be eligible to enter an aged care facility, it is necessary to undergo an assessment by an Aged Care Assessment Team (ACAT). ACAT will assess whether you need low level care (such as a hostel) or high level care (such as a nursing home).

Once the ACAT assessment has been completed and the required level of care is established, it is important to choose an appropriate aged care facility and determine the level of aged care fees that will be payable.

Aged care homes charge a range of fees to cover care, accommodation costs and living expenses. These can vary enormously between facilities and from resident to resident. You may be charged for the care and services provided as follows:

• Basic daily fee – as a contribution toward accommodation and costs of daily living.
• Income tested fee – as a contribution towards the cost of care.
• Accommodation payment – as a contribution towards capital accommodation costs such as an accommodation bond for low level care or accommodation charge for high level care.
• Extra service fees – where extra services apply to residents occupying extra service places for the provisions of a higher standard of accommodation services and food.

The level of your daily fees and accommodation payments can be negotiated with the aged care providers.

Basic daily fees

Residents in aged care can be asked to pay a basic daily fee as a contribution towards accommodation costs and living expenses such as meals and refreshments, cleaning, laundry, heating and cooling. The basic daily fee for all permanent residents who enter an aged care home on is 84 per cent of the annual single basic age pension. This is the maximum fee for all residents. This amount is indexed on 20 March and 20 September each year in-line with the indexation increases to the age pension.

Income tested fee

Residents in permanent aged care may be asked to pay an income tested fee in addition to the basic daily fee. The amount payable depends on the residents’ income and the level of care required.

Accommodation payment

The two types of accommodation payments are accommodation bonds and accommodation charges.

1) Accommodation bond

Residents with sufficient assets who require a low level of care may be asked to pay a bond.

The Australian Government sets the minimum assets a person must retain when establishing the bond amount. A person cannot be charged a bond amount that would leave them with less than the minimum asset amount. Where bonds are payable, the amounts and payment methods can vary – they can be negotiated with the aged care provider.

The aged care provider is able to retain a monthly amount from the bond for the first five years. The maximum amount of the monthly retention amount is set by the Government and will not vary during the entire length of stay at that aged care facility.

The accommodation bond paid, less the retention amount, is guaranteed by the Federal Government and will be generally refunded to the residents or their estates within 14 days of leaving the aged care facility.

There are a number of payment options for the accommodation bond. The accommodation bond can be paid as a:

• lump sum
• periodic payment
• combination of lump sum and periodic payment.

If the resident chooses not to pay the entire accommodation bond to the aged care facility, interest can be charged on the unpaid amount. This is known as periodic payment. The maximum interest rate charged is determined by the Federal Government.

Did you know? Paying at least part of your accommodation bond via a periodic payment and renting out your former home could deliver a better outcome than selling it. The overall benefit may be reduced aged care fees and maximising age pension entitlement.

2) Accommodation charge

Residents who have sufficient assets and require high level care may be asked to pay an accommodation charge.

The actual amount payable can be negotiated between the resident and the aged care provider. If a person chooses not to have an asset assessment, or has assets above the threshold, the amount of the accommodation charge they may be asked to pay will be the maximum applicable rate.

Did you know? Paying an accommodation charge and renting out your former home could deliver a better outcome than selling it.

The overall benefit may be reduced aged care fees and maximising your age pension entitlement.

Extra service fees

Some aged care facilities provide extra services which can be offered across the whole facility or to a designated part. Extra service means that the facility will provide the residents with a higher standard of accommodation and/or services.

The higher standard of accommodation and/or services will be paid for in the form of an extra service fee for a low level aged care facility or the payment of an accommodation bond for a high level aged care facility.

Please note: The payment of an accommodation bond within a high level aged care facility is different to a low level aged care facility as outlined within the section titled ‘Accommodation bond’.

The choice to access extra services is not mandatory.

The Government does not regulate the fees or the amount of the maximum bond that should be charged and the amounts vary from facility to facility. It is essential to check whether the aged care facility offers extra services and what costs are involved.

It is essential that residents understand that extra services does not mean that residents will be provided with a higher level of care (such as nursing), because all homes have to provide the same level of care to their residents. Some examples of extra services could be a bigger room, a wider choice of meals or wine with meals.

Accommodation and services vary from one facility to another, so you will need to check with the provider to find out whether they provide extra services and if so, what are the costs involved.

Keeping and renting the family home

Retaining and renting the family home can provide an exemption for social security purposes, provided:

• the resident is paying an accommodation charge to their high level aged care facility
• the resident has not paid an accommodation bond in full, and the resident is paying interest on the outstanding amount of the accommodation bond via periodic payment to the low level aged care facility
• the former family home is retained and rented out.

If these criteria are satisfied, the asset value of the former family home and the income (rent) will be exempt from both age pension assessment and aged care fees (income tested fees).

When retaining and renting the former family home, it is important to consider the income tax impact (as the rental income is assessable for tax purposes), the capital gains implications and whether renovations are required.

Conclusion

Ensuring that you make the right decision will depend upon a multitude of factors and the decision can be complicated. Speaking to a financial adviser who is an aged care specialist will ensure that you can make the right financial decisions.

Disclaimer:

If you intend to rely on any of the information in this document to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, you should request advice from a registered tax agent. This information does not take into account your individual objectives, financial situation and needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. The information contained in this document is given in good faith and is believed to be correct at the time of publication, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by Chan & Naylor, its officers, employees, directors or agents.