Getting old is one thing that those of us lucky enough will need to deal with.
One of the more challenging and complex areas to deal with is aged care.
Planning for aged care, although includes structuring assets so as to minimise the costs associated with aged care, needs to include being aware and understanding as best as possible what the costs associated with aged care are.
With awareness and preplanning you can maintain control over the process, have access to the financial resources to pay for care and avoid nasty shocks which can occur.
Step One: Plan Ahead
Families are often reluctant to talk about aged care and its implications both financially and emotionally. The result is action is only taken when a crisis arises. This leads to limitations being placed on time needed to evaluate options and a sub optimal decision may be made, resulting in family arguments and conflicts at a time when clear thinking is required.
What to do:
- Draw a family tree and identify family responsibilities and who will be involved in important decisions
- Have family meetings to discuss preferences and expectations
- Go to the My Aged Care website myagedcare.gov.au to find out more about what options are out there. This site also includes a fee estimator which can assist is costing the options you may have
- Consult a specialist financial adviser in this area of speciality
Step Two: Understand the Fee Structure
Depending on the family member’s financial assets and income, the level and range of fees payable can be surprisingly high.
Planning early on can help you focus on how to fund the fees to provide you with the best support – this may not necessarily be the cheapest option available.
What to do:
With the help of the My Aged Care website and/or the assistance of a specialist adviser gain an understanding of the range of fees, including:
- Paying for the accommodation. Most in care accommodation will require a lump sum deposit, called a refundable accommodation deposit. The level of this fee will depend on your level of assets but there is a minimum level of assets that you can be left with. Please note that this refundable accommodation deposit is not “lost” and is refundable if the resident leaves the accommodation either voluntarily or on death. There are options to pay this deposit bond in instalments but there will be an “interest” charge on the outstanding deposit bond balance. The level of the refundable accommodation deposit is subject to negotiation between the service provider and the potential resident. This could be over $500,000 for an individual or over the $1m mark for a couple as a worse case scenario, depending on assets held. The ability to negotiate will depend upon the availability of accommodation and the preferences of the resident.
Further there are daily accommodation payments which generally comprise two parts:
- A daily basic fee – which is the same for all
- A daily means tested fee – which can increase depending on your financial position but are subject to an annual cap as well as a lifetime cap. Once these caps are reached, the daily fee drops back to the basic daily fee only. Up to this point, both the means tested and daily care fees are payable
Therefore financial provision needs to be made not only for the refundable deposit bond but also for both the basic daily fee and the daily means tested fee.
- The daily fees above will cover basic living expenses such as food, electricity, cleaning and laundry services whilst nursing assistance is subsidised to the provider by the government.
However, any luxury, lifestyle and other additional items will need to be paid for by the resident on a user pays basis. This would extend to pharmaceutical, medical and other services such as hairdressing, clothing and treats.
In many organisations, only a bed and chest of drawers etc are provided. You may also need to purchase an appropriate chair, television and other items to provide the lifestyle that is desired.
Therefore, cost of these items need to be provided for as well.
Step Three: Structuring Finances
Accommodation costs are published on the My Aged Care website.
If assets and income can be reduced enough to become a low means resident before the move, the government may subsidise the accommodation and regulate what the residents contribution is.
This may reduce the accommodation cost but may not always be the best result for the resident. Choice and control of accommodation may well be lost. As a result, the resident may not be offered a position at their place of choice, but rather a place many kilometres from “home”. This may result in unhappiness, distress and depression.
Many accommodation places have places “reserved” for high fee paying residents such that having the funds and paying the price results in the accommodation of choice being offered, with a much better result emotionally for the resident. Don’t forget this as it is more valuable that the resident is happy than money saved!
What to do:
- Be aware that a home owner will generally not qualify as low means unless their spouse (or other protected person) will continue to live in that home
- If a resident wants to enter under the low means rules, unless planning has been undertaken at least five years earlier, there are not many strategies to reduce assets. Note that assets transferred/gifted within five years of entry may still be treated as assets under the gifting/deprivation rules.< This why consulting a specialist aged care financial adviser early is recommended
- Gifting/transferring of assets may incur stamp duty and capital gains tax – be aware of this before any action is taken.
Step Four: Ensure Wills and Powers of Attorney are set up
Dementia is a leading cause for the need for aged care services. It is very important for Wills to be reviewed and updated as necessary and appropriate Powers of Attorney executed whilst the resident has legal capacity.
Once legal capacity is lost, a Will cannot be renewed or amended. Further, it will be necessary to go to the Guardianship Tribunal to set up Powers of Attorney in these circumstances.
In conclusion, careful planning will ensure that the transition to aged care will be a relatively smooth and stress free process.