Trips and traps of placing a loved-one in residential aged care

Trips and traps of placing a loved-one in residential aged care

Chris Nothling

Moving into aged care can happen suddenly resulting in the need for families to urgently make a variety of decisions. This is an emotional time as families have to deal with the complexity of the aged care system and the combination of these factors can easily cause them to make rushed decisions, without a full understanding of the consequences.

Recent aged care reforms have further increased the complexity of the system. Now, residents have more choice, but equally, those with greater means must pay more for their care making it more important than ever to seek advice before making decisions. Proper planning will help you avoid the traps and pitfalls, inherent in the system. Several issues can trip you up when you are deciding financial matters for your loved ones. Here is a quick look at some complexities that are commonly addressed.

The former home

Many clients are conflicted over what to do with the primary residence and how to make sense of the trade-off: selling the property versus keeping and renting the property. There may be some situations where keeping and renting the home generates the best financial outcome. On other occasions, selling the house provides the best outcome. Under some circumstances the house may be included as an assessable asset towards calculating how much age pension is received and how much a family member pays towards the costs of aged care, but may not be assessable in others. By contrast, selling the house might create a sudden injection of assessable assets.

Paying for accommodation costs

The costs of care include a lump sum amount which covers your living arrangements known as a Refundable Accommodation Deposit (RAD). You can however choose whether you want to pay it all as a lump sum or if you would prefer to pay it as a periodic payment, or some combination of the two. Paying the full amount of RAD as a lump sum is not always the best option. You need to balance available capital with future cash-flow needs. So how much should you pay? What conditions lend themselves to paying the full RAD, and by extension, what conditions are better suited to paying a partial RAD?

Help from family members

Some people want to explore the option of giving (or lending) money to their aging parent to fund their accommodation costs. Although well intentioned, lending money to the family member going into care may have several unintended consequences. Providing money to parents to pay for accommodation costs may increase the costs of their ongoing care. This applies, even if the family has drafted a formal loan agreement with the resident. Another problem caused by lending money to parents may occur if the person in aged care passes away. The Refundable Accommodation Deposit will be paid to the deceased estate (not to the people who lent the money). In some circumstances the amount refundable amount of the Refundable Accommodation Deposit may be lower than the initial amount paid.

Supported resident status

Do you know that some people are exempt from paying for their accommodation in aged care? These are called supported residents. Do you know if your loved one could qualify as a supported resident? Centrelink evaluates whether you qualify as a supported resident by asking you to complete the Centrelink Assets and Income assessment form (SA457). You only get one chance at being assessed as a supported resident. Residents, who might qualify as supported residents, may lose the opportunity by jumping the gun and completing the form without a clear understanding of how assets and income are assessed. To complicate matters further, what does being assessed as a supported resident mean for their chances of finding an aged care home?

Evaluating which assets to redeem

Some residents may have a portfolio of assets, which they can convert to cash to pay their accommodation costs. They need to weigh which assets are best to liquidate for accommodation costs and which are better to retain for income to cover ongoing costs of care. There may be advantages to selling some and keeping others.

Even professionals working in this space, often, when confronted by these sorts of questions, don’t know the answers intuitively. Each situation has to be calculated and evaluated to fully understand the consequences. A small investment in time and money with an aged care financial adviser can help you make appropriate and informed decisions at a critical time in the life of your loved one.


The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice or its related entities. This information is general in nature and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. To view our full terms and conditions, click here.

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