aged care planning

www.hanrickcurran.com.au

Demystifying Aged Care Planning

October 2014Guest presenter:

David Peck, Authorised Representative

Key Messages

• The Aged Care system is complex.

• You don’t need to be an expert but you should have a broad understanding of the issues.

• Seek professional advice before you are forced into making decisions that you may regret.

• Better lifestyle and financial decisions are made when planning starts early.

experience. new thinking

Case Study – The Wilsons

• Brian aged 81 and his wife Helen aged 76

• Receiving full aged pension $1,270.60 pf.($33,035 pa)

• Assets

• Family home valued $850,000

• Personal assets valued $10,000

• Term deposit of $200,000 earning 3.5% p.a. ($7,000 pa)

• Monthly outgoings

• $650 p.w, which is met by current income stream

• Family

• One son, Tim, who holds Power of Attorney

• Health

• Brian’s health is deteriorating and Aged Care considerations are required

• Helen appears to be fine at this stage.


Key Family Concerns

• Cash flow considerations

• Household income only ‘breaking even’ on expenses

• Will they be able to afford Aged Care in the future?

• Capital considerations

• Will they be required to sell the family home?

• Will they need a lump sum to fund Brian?

• Accommodation considerations

• Where will Helen live if the home is sold?

• What Aged Care facilities are available for Brian?


Family Discussions



Accommodation Options


Cash flow considerations


Capital Asset considerations


Legal considerations


Back to the Case Study

• The family decide it’s best for Brian to move into Aged Care.

• The advertised room fee of $440,000 applies for the facility chosen.

• Once Brian moves into Aged Care – Centrelinkclassify them as an illness separated couple

• Based on their asset position, their age pension entitlement will increase to $1,685p.f. or $43,810 pa.

Accommodation Fees


EntryFee

Extra Service

Refundableaccommodation

deposit or charge (RAD/RAC) and/or

Daily accommodation

payment or charge (DAP/DAC)

Determined by assessable assets

and income

Payable where extra services are

available

$15-$130 per day (Based on services

taken Set by facility)

Based on Income & Assets

On-going Care Fees


Basicdaily fee

Means tested

care fee

Payable by all residents

85% of the Age Pension or $46.50

per day

Payable if meanstested amount is

over a set amount

Determined by assessable income

and assets

Based on Income & Assets

Means Tested Fee


Advertised accommodation payment payable

Additional means tested fee is payable

Accommodation payment based on calculated means tested amount2

No means tested fee payable

Maximum government accommodation supplement of $52.49


Brian’s Accommodation Fees

• Brian’s means tested calculation is lower than the government maximum accommodation supplement of $52.49 per day.

• This means that he is not required to pay the standard advertised room fee of $440,000.

• Instead, a lower accommodation charge of $157,402.84 has been calculated based on Brian’s share of household assets and income.

• Residents however must be left with minimum assets of $45,000.

• In Brian’s case it has been calculated that the maximum lump sum that can be charged is $60,000.


Brian’s Accommodation Fees cont…

• Normally, there are 3 accommodation payment options:

• Pay all of the fee as a lump sum

• Pay all of the fee as a periodical payment

• Pay a combination of lump sum and periodical payment.

• Even though Brian’s maximum lump sum (Refundable Accommodation Charge or RAC) of $60,000, the fee still is $157,402. This means that Brian is limited to a lump sum up to $60,000 plus a daily payment.

• A periodical payments only; $28.85 per day or $10,530 per day,

• A lump sum of $60,000 and a daily payment of $17.85 per day.

• Any lump sum payments made are refunded to the estate


Brian’s on-going care fees

• Brian pays a daily care fee.

• Without exception, this fee is paid by every aged care resident

• $46.50 per day

• Equal to 85% of standard full aged pension

• Based on Brian’s income and assets he is not required to pay a ‘Means Tested Fee’

Cash flow comparisons


Brian Chooses to pay the $60,000 out of their term deposit

Year 1 No RAC Paid $60,000 RAC paid

Cas

h

flo

w

Age Pension $43,826 $43,826

Investment income $7,000 $4,900

Living Expenses ($23,400) ($23,400)

Total $27,426 $25,326

Car

e

Fee

s

Basic daily fee $16,973 $16,973

Means tested care fee $0 $0

DAC$10,530 $6,516

Total $27,503 $27,454

Excess cash flow ($77) $1,837


Fast forward 6 months …

• Helen has a fall and is no longer independent

• Her ACAT assessment approves her for residential aged care

• A place is available in Brian’s facility

• The room is advertised for $440,000

• Helen and Brian’s term deposit has reduced to $140,000 after paying $60,000 for Brian’s accommodation

• Their living expenses are now estimated to be $100 per week


Helen’s Accommodation Fees

• Helen is above the line on the means tested fee calculation principally because the family home is now included in means tested assets (MV $850,000)

• The advertised room rate is $440,000.

• There are 3 accommodation payment options:

• Pay all of the fee as a lump sum refundable accommodation deposit (RAD) of $440,000.

• Pay all of the fee as a daily accommodation payment (DAP) of $80.65 per day.

• Pay a combination of lump sum and periodical payment.

• Any lump sum payments made are refunded to the estate


Helen’s on-going care fees

• Helen pays a basic daily care fee.

• Without exception, this fee is paid by every aged care resident

• $46.50 per day

• Equal to 85% of standard full aged pension

• Her means-tested care fee exceeds the government’s daily supplement of $52.49 per day by $2.88 per day.

• She is required therefore to pay $2.88 per day


Impact on Brian’s Fees

• When Brian first entered aged care, the family home was not assessed because Helen was living there.

• When Helen vacates the home, additional assets of up to $154,179 being the maximum amount that can be counted towards the family home will be included in Brian’s assets when re-calculating the means tested fee.

• In this case, Brian will now exceed the means tested fee by the same amount as Helen ($2.88 pd.)

• Brian can not be asked to pay the advertised amount of $440,000 but his daily accommodation charge will increase.

• Brian’s daily accommodation charge (DAC) is calculated to increase by $41.49 pd. When added to the $17.85pd already being paid, this exceeds the means tested fee threshold of $52.49. The new DAC is capped at $52.49.

• Brian will now also pay a daily means tested fee of $2.88pd.

Selling or keeping the home

• Helen could pay the entire accommodation payment as a daily accommodation payment (DAP) and not sell the home. This fee would be $80.65 per day.

• The former home is in good condition and her son, Tim decides to rent it out for $615 per week ($32,000 pa)

• The other option would be to sell the home


Cash flow position summary- Helen & Brian


Year 1

Rent house No lump sum payment by Helen

Rent house. Helen pays

$100,000 RAD

Rent house. Pay $100,000 RAD. Deduct Helen’s DAP from RAD

Sell house for $850,000. Pay RAD & RAC and balance in a Term Deposit

Cas

h F

low

Age Pension $43,826 $43,826 $43,826 $42,451

Investment income

$4,900 $1,400 $1,400 $11,326

Living Expenses ($5,200) ($5,200) ($5,200) ($5,200)

Rental income $32,000 $32,000 $32,000 $0

Total $75,526 $72,026 $72,026 $48,577

Car

e F

ee

s

Basic daily fee $33,945 $33,945 $33,945 $33,945

Means testedcare fee

$2,102 $2,102 $2,102 $11,380

DAC (Brian)$15,145 $15,145 $15,145 $0

DAP (Helen) $29,436 $22,746 $0 $0

Total $80,628 $73,938 $51,193 $45,326

Final cash flow

($5,102) ($1,912) $20,833 $3,252

1experience. new thinking

Final Cash flow position

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How can we help?

Current investments

Funding accommodation bond

Review current position

Keep? Sell? Home?

Investing sale proceeds

Family home options

Centrelink/DVA

Impact on Age Pension

Strategies to maximise pension

Calculate fees

Strategies to minimise fees

Aged care fees and charges

Death benefits

Wills and enduring POA’s

Estate planning

PAYG and CGT

Tax offsets in conjunction with HC

Tax planning


Disclaimer

Important Notice

RI Advice Group Pty Ltd, ABN 23 001 774 125, holds Australian Financial Services License Number 238429 and is licensed to provide financial product advice and deal in financial products such as: deposit and payment products, derivatives, life products, managed investment schemes including investor directed portfolio services, securities, superannuation, Retirement Savings Accounts.

The information presented in this seminar is of a general nature only and neither represents nor is intended to be specific advice on any particular matter.

RI Advice Group strongly suggests that no person should act specifically on the basis of the information contained herein but should obtain appropriate professional advice based on their own circumstances.

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