When faced with the decision to move a loved one into aged care, it’s often a confronting experience and often is exacerbated with the need to make decisions quickly. It’s important that you understand the options that you have in relation to the funding of any required care and the impact this may have on things such as cash flow, Centrelink and ongoing aged care fees.

To illustrate this, here’s a recent example of a client we assisted in understanding their options in relation to entering an aged care facility. Names have been withheld for privacy reasons.

Case Study: Beryl, 89

Beryl has a house in Newcastle estimated to be worth $1.5 million. She had been receiving home care services and was able to stay in her property with the aid of these services, however her health has reached a point where she will need to enter full time care.

Beryl receives a full age pension amount of $25,155 per annum and has the following assets outside of her house:

• Bank account: $50,000
• Car: $3,000
• Home contents: $5,000

Beryl’s daughter had found a room at a local aged care facility that they were both comfortable with, and the required lump sum payment for this room was $550,000 (known as a Refundable Accomodation Deposit or RAD for short). Beryl and her daughter believed the only option they had was to sell her house and pay the lump sum required.

It’s important at this stage to understand all the options available and assess the impact of each. Sometimes there will be limited options and other times there will be a number of options to consider. In Beryl’s case we considered the following options.

Option 1: Sell the house and pay the required RAD of $550,000.

The first option we considered was what they thought was their only option in selling the house. Assuming a sale price of $1.5 million after costs this would allow Beryl to fund the RAD payment and would still leave her $950,000, which she would hold in her bank account. The below shows the impact on her cash flow (per annum):

• Estimated bank interest ($1,020,000 @ 0.50%) = $5,100
• Aged pension income = $0
• Basic daily care fee = ($19,549)
• Means tested fee = ($25,649)
• Total cash flow = ($40,098)

So under this scenario, Beryl would be out of pocket approximately $40,098 in the first year in order to fund her care costs.

Option 2: Maintain the house and pay the required lump sum payment as a Daily Accomodation Payment (DAP)

Given Beryl’s circumstances, we also considered the option of her maintaining her property and funding her care with ongoing payments. Often people overlook the ability to pay care costs in this manner and at times different assessment rules around aged care fees and Centrelink could make this a beneficial option. Here’s the impact on her cash flow (per annum):

• Estimated bank interest ($50,000 @ 0.50%) = $250
• Aged pension income = $25,155
• Daily accomodation payment (DAP) = ($22,220)
• Basic daily care fee = ($19,549)
• Means tested fee = ($0)
• Total cash flow = ($16,364)

So under this scenario, Beryl would be out of pocket approximately $16,364 in the first year in order to fund her care costs. Whilst she has an added DAP payment of $22,220 per annum, she has a much more favourable outcome in relation to her age pension and means tested fee. Overall she is approximately $23,734 per annum better off from a cash flow perspective compared to option 1.

It should also be added that this would also allow her property the opportunity to grow in value over this time. It’s important to note though that the Centrelink assessment of her property would change after two years in this scenario and would need to be reconsidered as would Beryl’s ability to continue to fund costs from her bank account.

Option 3: As above, however rent the property

Rather than keeping Beryl’s property empty, we also considered the option of renting the property. It was estimated the property could be rented for $800 net per week. Here’s how this would impact her cash flow (per annum):

• Estimated bank Interest ($50,000 @ 0.50%) = $250
• Aged Pension Income = $7,436
• Rental income = $40,000
• Daily Accomodation Payment (DAP) = ($22,220)
• Basic Daily Care Fee = ($19,549)
• Means tested Fee = ($10,107)
• Estimated tax = ($5,965)
• Total cash flow = ($10,155)

So under this scenario, Beryl would be out of pocket approximately $10,155 in the first year in order to fund her care costs. Overall, she is approximately $29,943 per annum better off from a cash flow perspective compared to option 1.

Again, it should also be added that this would also allow her property the opportunity to grow in value over this time. It’s also important to again note that the Centrelink assessment of her property would change after two years in this scenario and would need to be reconsidered as would Beryl’s ability to continue to fund costs from her bank account.

How We Can Help

This case study helps highlight the different scenarios that may present themselves when looking at a move into an aged care facility and why it’s important to understand the options available.

At Lambourne Partners, we have accredited aged care advisors that can help you understand the options you may have available and the potential benefits of each. Contact us below or call us on (02) 4969 6600 to organise an appointment to discuss your situation.