By Mark Teale on 11 November 2020
I have discussed Aged Care costs in several Realise Your Dream articles, but questions on funding the entry and ongoing costs still do arise.
Don’t get me wrong. I’m not suggesting that no one is reading my blogs (I hope). However, I do appreciate that Aged Care is not a subject that families usually discuss until mum or dad are in the hospital and the nursing staff are advising that it’s not in mum or dad’s best interest to return home.
This is the time that people focus on the question of Aged Care options, start to ask questions and wonder what needs to be done. For this blog, I am not going to step through the entire process, but I would like to concentrate on a couple of areas that seem to raise several questions.
The first issue is the payment of the entry fee, known as the Refundable Accommodation Deposit or RAD. This amount can be, on average, around $450,000. Not an insignificant amount, I’m sure you will agree.
This week I was approached by the family of Evelyn who owns her home, valued more than $1 million. Evelyn has lived in her home for over 50 years; all her children grew up in the home and everyone has a sentimental attachment. Evelyn receives a full age pension and has less than $100,000 in cash and term deposits.
The first question I am asked is, “Mum does not have $450,000 to pay her RAD. How is she supposed to pay for entry into the nursing home?”
My answer is that mum will need to sell her home to pay the entry fee and the ongoing costs of her aged care. The responses to that answer generally range from, “okay we understand”, to “that seems totally unfair”.
In Evelyn’s case, as she does not have the money to pay the RAD. at the time of entry to Aged Care, her fees will be:
- Basic Daily Fee - $52.25 per day
- Means Tested Care Fee - $2.75 per day
- Daily Accommodation Payment (DAP) - $50.55 per day (interest of 4.1% payable on the unpaid RAD)
Evelyn is still entitled to the full age pension of $944.30 per fortnight, and if we consider the cash she has, she can pay her fees for several years.
In a number of situations which I have encountered, the children who are keen to not sell the home offer to pay the RAD for mum so that she does not have to pay the interest on the RAD.
This would change Evelyn’s fees to:
- Basic Daily Fee - $52.25 per day
- Means Tested Care Fee - $23.57 per day
- Daily Accommodation Payment - $0 (RAD has been paid so there is no interest to be paid as a DAP
The Means Tested Care Fee has increase dramatically because the RAD is included in Evelyn’s asset, even though the RAD has been paid by the children and not using her own money.
Evelyn is still entitled to the full age pension of $944.30 per fortnight.
The children are happy, they understand that the funds will be returned to them when Evelyn passes and her cash in the bank will certainly last for a longer period of time. This may seem like a reasonable outcome, until you point out that in two years’ time Evelyn will lose her age pension entitlement because her million-dollar home then becomes an assessable asset.
Evelyn’s cashflow has taken a $944.30 per fortnight hit and she will certainly require more assistance from the children, if they still wish to keep the home, to meet Evelyn’s care costs.
What other options are available if the children insist on keeping the home?
Sorry to keep you in suspense but the answer to that question will be covered in a couple of weeks. Stay tuned!