Aged care – what you should know

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Aged Care is an area that is growing rapidly and struggles to keep up with demand.

More people are living longer than ever before – and by 2060, a quarter of all Australians will be aged over 65. Our Aged Care system needs to keep changing to accommodate the growing demands of an ageing population.

There have been more changes to the system recently, and this article outlines some of the main current considerations for people who are close to making a move to Age Care (or have a loved one in this position).

Once you are ACAT (Aged Care Assessment Team) approved and you’ve found your preferred home, there are three broad areas to consider:

1) The upfront costs: Accommodation Payment

To move into an Aged Care home, you will need to cover the costs for establishing residency in the facility.

One option is to make a lump sum payment, known as a Refundable Accommodation Deposit (RAD). As the name suggests, it is a refundable deposit that will be returned (minus fees and move out costs) to you or your estate once you leave the facility. Most facilities charge a RAD of around $300,000 but the RAD can be any amount up to $550,000 (or higher with government approval).

This can be difficult for some families to pay, so there is an alternative option. You can decide to ‘borrow’ the deposit from the facility and pay a Daily Accommodation Payment (DAP). The facility calculates the DAP based on the RAD and the government-chosen interest rate (5.73% as at 1 July 2017).

For example, if a facility has a RAD of $300,000 the DAP would be $47.10 per day ($300,000 x 5.73% / 365 = $47.10).

For some families, this is still not possible as they may have insufficient financial assets to pay either the RAD or DAP. Clients with this level of financial hardship, may qualify for ‘low-means’ care. To qualify as low-means, you are likely to have assets less than $160,000 and receive full age pension. You will then have the option to pay a Daily Accommodation Contribution (DAC) which will be less than your DAP. You should consider if low-means is right for you, as you will not be receiving the nice new room in the facility! Once you are classified as low-means, it cannot be undone, unless you move to a new facility.

2) The daily costs: Basic Daily Fee & Means Tested Care Fee

Now that you have covered the costs for the accommodation, the next phase is covering the costs for care.

The government estimates the cost of Aged Care to be $244.97 per person per day, or almost $90,000 per year. When you consider the full age pension for a single is only $21,071, you can easily see the government is forced to supplement some of the costs for care.

The first cost to be aware of is the “Basic Daily Fee”. This is paid by everyone living in an aged care facility. The calculation is government controlled, at 85% of the single person rate of the basic Age Pension, currently $49.07 per day.

The other cost that may apply is the “Means Tested Care Fee”. This fee is based on the current income and assets of the resident – the more assets you have, the higher the Means Tested Care Fee. For example, a non-homeowner with approximately $250,000 of assets would pay a Means Tested Care Fee of around $15 per day.

There are online calculators that can assist you in calculating this cost.

There are Annual and Lifetime caps on these costs: the Annual cap is $26,380, and the Lifetime cap is $63,313. However these do not apply to residents who entered care before 1 July 2014.

3) Cashflow & strategy

The final phase of the Aged Care process is funding the ongoing costs. This is an area where a financial adviser can provide great assistance with the many questions that arise. For starters, the most common concern revolves around the family home. How is the home assessed? Does it have to be sold to provide cash flow? Some alternatives might be to release equity in the home, or for the children to help with these costs. Ultimately, the right decisions can reduce fees, increase entitlements, and minimise tax issues. It is also often possible to negotiate deals with providers.

During this phase, we would also encourage everyone to review their wills, especially the estate allocations. For example, if a home was originally gifted to a child as part of their inheritance, but then that home needs to be sold to fund Aged Care, then the will may need to be updated to reflect that change.

In conclusion

Since more people are living longer than ever before, Aged Care is an area that is growing rapidly and struggles to keep up with demand. The government has rolled out a successful Home Care Program that may be an option for some families needing support, but not requiring full aged care service.

If you, a family member, or a friend are considering Aged Care, we strongly encourage you to engage a financial planner early. This will equip you with the knowledge and time to make the right decisions for you and your family, rather than being forced to take anything that’s on offer at a time of crisis.

By Scott Ungaro, Financial Planner, and Philip Win, Senior Financial Planner.

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