Residential Aged Care: Will We Need to Sell the Family Home?
With the COVID-19 pandemic’s impact on some residential aged care homes, finding quality aged care for loved ones is a top-of-mind concern for Australians now more than ever. We’ve partnered with Alteris Financial Group, specialists in aged care financial advice, to present this three-part series on financing residential aged care. In this Part 2, we look at how whether meeting residential aged care costs has to mean selling the family home.
There are many decisions to make when someone you love needs to move into residential aged care. One of the most common questions is ‘Should we sell the family home to fund the aged care fees’? Families are often worried about the need to sell the home and want to know more about alternative options.
The aged care timeline
On entering permanent residential aged care, a resident has 28 days to decide how they would like to fund the accommodation costs. Whilst some may choose to sell the family home there is no requirement to do so.
Residential aged care providers can charge a Refundable Accommodation Deposit (RAD) for those permanently entering, unless the resident is assessed as being eligible for government assistance.
RADs can vary between operators depending on the type of room. They can be more than $1,000,000 but most are in the range of $450,000 to $550,000. Often the major asset available to pay the RAD as a lump sum is the resident’s home.
However, there is no requirement to pay a RAD in that manner. If funds are not available a Daily Accommodation Payment (DAP) can be paid. This is interest on the RAD, which is currently 4.89% pa set by the Commonwealth Government. For example, if the RAD was $500,000 the equivalent DAP would be $66.99 per day ($500,000 x 4.89% divided by 365). The interest rate is fixed at date of entry to care.
Case study: Doreen
Alternatively, the RAD can be paid as a combination payment of part RAD and DAP. For example, Doreen, a widow, has a home worth $650,000 and cash of $150,000. The aged care home has asked for a RAD of $500,000. Doreen’s family do not wish to sell her family home. They have organised to pay $100,000 part RAD in cash and the rest by DAP. Her DAP would now be $53.59 per day ($500,000 minus $100,000 = $400,000 at 4.89% divided by 365).
If paying the DAP from Doreen’s cashflow was a concern she can request the aged care facility to take the DAP out of the partial RAD that was paid. This will assist cashflow but will reduce the RAD. If the RAD is reduced to zero Doreen will be asked to top it up or pay the DAP on her $500,000 RAD.
How does the family home asset affect an aged care resident’s pension?
An important consideration is the treatment of the family home for Centrelink and Department of Veterans' Affairs (DVA) purposes. When it is kept it is an exempt asset for two years from the date the resident enters permanent aged care. After two years the full value of the home is assessable. In this case the aged care resident could lose their pension or have it reduced.
This information was first published by Alteris Financial Group, who are specialists in the area of aged care financial advice. We have partnered with Alteris Financial Group to provide our clients with financial aged care advice via their Lifestyle and Care team.
If you need financial advice about residential aged care costs for yourself or a loved one, please call us anytime on (02) 8268 2900 for an obligation-free chat.