Finding the best way to pay for your aged care needs can be overwhelming.
- What are the financial consequences of selling the family home?
- Will you lose your pension entitlements?
- What will be the financial impact on your family?What is the best way for us to pay for aged care?
- Is it necessary to sell the family home?
- Can we protect our savings?
- How can we optimise pension entitlements?
- What are the tax implications?
Anyone who has looked into residential aged care knows that the costs can soon add up, particularly when considering an extra service facility. If you know how to minimise these costs, you can save a small fortune.
Below are some simple options to consider in potentially reducing your aged care costs.
Paying a higher Accommodation Bond
Paying more money to a residential aged care facility appears to go against the idea of saving money, but this is not always the case. Here are a few reasons to consider paying a higher accommodation bond.
1. An accommodation bond is not means tested for Centrelink purposes, so paying a higher accommodation bond may allow the resident to receive a higher age pension if they already receive one, or may enable them to be eligible for an age pension plus the pharmaceutical benefit card, which entitles them to discounted prescriptions on medicines.
2. A resident will pay an Income Tested Fee if they have income above $914.10 for a single person and $896.10 each for a couple. The maximum Income Tested Fee is currently $70.74 per day. If a higher accommodation bond is paid, then this means Centrelink have fewer assets to deem for income which may reduce the amount of the Income Tested Fee.
3. It may be possible to negotiate on fees with the aged care facility provider, particularly those in relation to extra service fees. For example, the resident might pay a higher bond in return for a reduction in extra service fees or basic care fees. Generally this is a private arrangement where the family of the prospective resident initiates the negotiations with the facility.
Purchase a Funeral Bond and gift assets
A recent client was in high care and was paying the accommodation charge. His assets totaled $120,000 which was above the maximum allowable threshold of $109,640.80. As a result he had to pay the maximum amount of the accommodation charge which was $32.76 per day or $458.64 per fortnight.
By taking out a funeral bond to the maximum amount of $11,250 which is not means tested by Centrelink, and gifting the maximum amount allowed by Centrelink of $10,000 to his son, the client was able to reduce his assets to $98,750. This allowed a reduction of his accommodation charge to $27.52 per day or $385.33 per fortnight. This equaled to a saving of $73.31 per fortnight.
As the client is eligible to gift a total of $30,000 over five years with a maximum of $10,000 per year, the client may gift future assets in years to come and further reduce the accommodation charge.
Purchase an Aged Care Annuity
An age care annuity is an income stream. You provide funds to an insurance company who then guarantee you a level of income for the rest of your life, subject to certain terms and conditions.
The income from the annuity provides concessional income treatment for Centrelink purposes which may have the effect of increasing the amount of the age pension received, as well as reduce the amount of the income tested fee in residential aged care.
Example: Mavis who is 85 years old and recently gone into residential age care purchases an annuity for $200,000 and is guaranteed an income stream for life. In return she receives an income of $8,000 per year.
Centrelink do a calculation and determine that the amount of income concession that Mavis is entitled to from the annuity is just under $28,000 per year. As this is more than the amount of the income that she receives from the annuity, no income from the annuity will be counted for Centrelink income test purposes which may increase the amount of age pension she receives as well as reduce the amount of the income tested fee payable.
Were Mavis to keep this amount in a bank account earning interest, the full amount would be deemed for Centrelink purposes and Mavis would be seen to be earning $7,315 per annum on those funds. Therefore her pension might be reduced and she might be required to pay a higher amount of the income tested fee depending on how much other income she has.
Medical Expenses Rebate
While this is not a specific way to save on residential care costs, it is a way in which a resident may reduce their tax liability as a result of the costs of residential aged care.
If a resident’s taxable income is less than $84,000 per year then they are eligible to claim a rebate of 20% for aged care costs above $2,060. The types of costs that may be claimed include:
• daily fees
• income tested daily fees
• extra service fees, and
• accommodation charges
• periodic payments of accommodation bonds
• Retention amounts drawn from accommodation bonds paid as a lump sum.
The above represent some very basic and simple strategies you can use to try to reduce your aged care costs. Depending on your financial circumstances, you may need to look at more complex strategies. Whatever the resident’s situation, you should look for financial advice from a licensed financial planner.
If you would like to know more about how we may be able to help you plan for your future, call on 1300 99 77 34 or email your enquiry to FinancialOptions@chan-naylor.com.au for a complementary initial consultation.
David Hasib – Director, Chan & Naylor Wealth Planning
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