40/70 – these are the ages to think about and plan re Aged Care issues.
Age 40: At age 40, children may have parents who will be approaching the age to think about aged care.
Age 70: Parents are approaching the age to think about aged care.
As of 1/7/14 the rules relating to fees and charges changed – and have become more complicated! For those in aged care before 1/7/14, they are ‘grandfathered’ and less likely to be impacted.
There are two types of fees as per the following summary –
Extra/Additional service fee
Basic Daily Fee
Means Tested Care Fee
The accommodation cost is paid by either the RAD or the DAP or a combination of the two – totally at the discretion of the Resident. They have 28 days to tell the facility how they will pay for their accommodation after they enter.
RAD – Refundable Accommodation Bond. 100% Fully refundable to family or estate on leaving – nothing is deducted (unless there is mutual agreement to do so as a way to pay other fees). This is set by the Facility and must be advertised on the Govt Website as to what their RAD is. The maximum is $550,000. This will vary depending on the quality of the Facility.
DAP – Daily Accomm Payment. The RAD amount can be converted to a daily payment at the discretion of the resident. It is converted by reference to an interest rate factor. If the RAD was $400,000, the daily payment (DAP) would be:
$400,000 * 6.69% / 365 = $73.32 (Effectively 6.69% interest charged on the RAD not paid).
The resident could pay, say, $200,000 lump sum for the RAD and $36.66 daily payment under DAP. They can split their accommodation cost depending on their cashflow and assets.
Some things to think about and plan for:
The additional services fees can be charged by the Facility for additional and special services. This is something the resident may wish to take up – so will need to allow cash flow to meet that.
This is automatic and payable by every resident. It is set at 85% of the Age Pension irrespective if the resident is on the Pension or not. The very poor should be able to pay as they will get the full pension and 85% will go to the facility.
This is the one payment area that many will focus on – as it is only payable by those who have assets and income above set levels based upon a Means Test.
This Test is done by Centrelink. There is an income and asset test for this – based upon the usual Centrelink Age Pension Tests but with some important differences.
The income means test is the usual Centrelink Income test plus any Age Pension the resident receives (excluding the ‘minimum pension’ and ‘clean energy’ supplements). Once the deemed income is determined, it is reduced by an income free area and then 50% is excluded (as follows):
Assessed income – Income Free area * 50%
(The income free area is $24,835.20pa for singles and $24,367.20pa each for couples separated)
Under the asset means test, the usual investments, bank accounts, investment properties, cars, house contents and financial assets are included but only the first $154,179 of their house, and only that if there is NOT a Protected Person living in it (eg the spouse). The amount of the RAD is also counted.
The amount under the assets test is calculated as:
17.5% of assets between $45k and $154,179 and
1% of assets between $154,179 and $372,538 and
2% of assets above $372,538
The Means Tested Amount is: Income tested amount + Asset tested amount /364
If the Means Tested Amount (MTA) falls below a set figure ($52.49 per day) then the resident is deemed to be of “Low Means” and they only pay a lower set amount and no Means tested Fee.
If the MTA is above the set amount ($52.49 per day) then the resident will pay a MTA based on their assets and income. There is a maximum of $25,000 per annum for this and no more than $60,000 over 4 years.
There is still much wisdom in the attitude of maintaining assets or ability to pay RAD’s and DAP’s so that the prospective resident has a greater chance of selecting their retirement home! I do not subscribe at all to the idea of trying to divest one-self of assets so as to avoid having to pay too much for Aged Care needs. If Aged Care homes were full of people with little or no assets they would be almost unviable to run – and possibly the care would have to be minimal.
So ask yourself – do I want to have the best chance of my choice of which Aged Care facility in which city, or do I gift away most of my assets and do it on the cheap taking the risk that I end up in a home I don’t like far away from my family (leaving my children with more money for them to spend)?
Remember – 40/70 and plan for the possibility of aged care.
We recommend people seek expert advice in considering their respective positions, both financial, taxation, emotionally and otherwise.
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