Article update: The Basic Daily Fee and means-tested care fee mentioned in this article are as per The Department of Human Services' revised aged care fees released on 21 June 2019.
Making the move to residential aged care can be a difficult and stressful time for families, both emotionally and financially. While aged care financial advice needs to be tailored to your situation, here are five common mistakes to avoid in the transition.
Mistake 1: Making a rushed decision about how to fund the accommodation payment
Aged care decisions often need to be made quickly and the pressure to secure a place can leave families feeling rushed into making complex financial decisions without understanding the implications. We typically see accommodation payments ranging between $400,000 - $700,000 but they can be higher. A new aged care resident has just 28 days to decide whether to pay a lump sum refundable accommodation deposit (RAD), a daily accommodation payment (DAP) or combination of the two. The best option is different for everyone so it’s important to seek advice.
Mistake 2: Selling the family home without understanding the implications
The first thought for many faced with funding aged care is to sell the family home. This can negatively impact Age Pension entitlements by increasing your assessable assets and therefore increase aged care costs. In some cases, it is still the right decision, in others a different funding approach is better. Seek advice because either option may have unintended impacts.
Mistake 3: Having insufficient income or cash to fund ongoing aged care costs
The accommodation payment secures an aged care place, but there are also ongoing care fees to consider. The maximum Basic Daily Fee which all residents pay, is currently $51.21 ($18,691.65 per annum) but many will also pay a means-tested care fee of up to $ 27,532.59 p.a. depending on their assets and income. The families we work with find it a great relief to fully understand the costs and to plan options to pay them such as using cash reserves, pension payments or selling down investments.
Mistake 4: Supporting parents without understanding the impact on aged care cost calculations
Adult children often want to help their parents fund the accommodation payment to secure a place in the best facility. The problem is that this gives their parents money or assets which then become assessable for the means-tested care fee calculation, leading to increased ongoing aged care costs. A better alternative is to pay the ongoing costs, which do not impact the means-tested care fee.
Mistake 5: Not having estate planning affairs in order
Getting estate planning documents (e.g. Power of Attorney) reviewed prior to entering care removes a lot of stress at an already emotional time. Consideration should also be given to any assets that may pass to a beneficiary in aged care, where again their means-tested care costs could sky-rocket, quickly eroding family wealth when it is entirely avoidable.
Get your questions answered and protect your family wealth
A final word
As with many of life’s big changes, the move to aged care requires a lot of research to make the right decisions for yourself or a loved one. It’s important to understand the systems and processes so that you are aware of the best options for your family and finances. In my experience, no two family situations are the same and a range of financial strategies may needed to protect your wealth.
If you or someone you know are facing decisions about aged care, please ensure you speak with a trusted adviser before making commitments. We can help, call us on 1300 134 187, or click the link above to book a consultation. There is no charge for the first meeting where I can answer your inital questions. From there we can determine whether you'll benefit from more detailed advice or financial modelling for aged care funding.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.