21 September 2016 by Aon Hewitt
Australia’s ageing population is most certainly a topic we hear about regularly. Therefore, it shouldn’t come as a surprise that it’s a trend that will continue in our nation over the years to come. As a result of this trend, we know that many families are likely to be faced with decisions about aged care. Unfortunately, it’s a topic of life that can – and regularly does – cause all sorts of family tension.
If not already difficult enough as a result of the emotional nature of the topic, conversations within families can become even more challenging when there’s a lack of real understanding about the financial implications of decisions made. Sadly, it’s common in family life.
All too often, we hear families lament that aged care facilities ‘will take all my money’ (or mum and dad’s money, depending on who is doing the talking). Naturally, aged care does come at a cost. However, the notion that it is a one-way street to wealth destruction is entirely misguided.
Put simply, individuals in aged care facilities will be asked to pay one or more of:
- A basic daily care fee, currently set at the equivalent of 85% of the annual single person rate of the aged pension;
- An additional fee based on income and assets of the resident, with annual and lifetime caps set by the government;
- An accommodation payment or contribution, based again on income and assets (this part can be paid up front, periodically or in a combination);
- Extra costs for higher levels of accommodation, food and services.
It’s the accommodation payment or contribution that prompts the ‘take all my money’ thinking. Here are the facts. Paid up front, the payment is called a refundable accommodation deposit. It is a bit like a long-term, interest free loan to the care facility. The balance, less any amounts payable along the way, is refunded to the resident (or estate) when the residency ends. Again, there is a cap on the amount payable.
Paid periodically, the amount can be thought of as rent. Of course there’s then no refund when the residency ends.
The really good news is that since 2014, all aged care facilities are required to disclose their maximum accommodation prices on the ‘My Aged Care’ website, on their own website and in any published material. Two important points to note: first, the resident (or whoever is making decisions on their behalf) can choose how to pay – up front or with periodic payments. Secondly, remember that what is published is the maximum the facility will charge. The actual fee paid can be negotiated.
Of course, as with all things, it is all about supply and demand. The ageing population means potentially higher demand over time, and unless there’s large scale investment in new facilities, that negotiability may well be limited.
Another key decision in this topic is what to do with the property the individual will be leaving to enter care. To sell or not to sell will depend on a range of issues and can impact how income and assets will be assessed for fee purposes. If there’s a partner staying in the property, then it’s pretty straightforward. Otherwise, some deeper consideration will be needed.
This is a tough area for families to negotiate. Really tough. It’s emotional and can bring out the best and (sadly) the worst in family members who frankly may be more concerned about inheritance issues than the wellbeing of the person needing care. Keeping an eye on the rules and getting some good advice can help reduce stress levels.
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We have services to assist in planning for aged care and helping your family to navigate the system. For further information, get in touch with us today.