Last year I wrote a RYD blog – Aged Care: What a difference $5000 can make. I would like to revisit this blog and the information discussed.

The following is a real example of the issues I discussed in the blog and shows the importance of talking to an expert and not listening to a friend or a neighbour.

In this particular situation, Mavis is living with her son Dan and his family. She does not own a home, has $176,000 in cash and term deposits, and $5,000 in personal assets - mainly jewellery. Mavis is in receipt of the full age pension and is paying her son $500 per fortnight in board and lodging, qualifying her for rent assistance of $140.80 per fortnight. Her son Dan has an Enduring Power of Attorney (EPOA) for Mavis.

Unfortunately, Mavis’s health has declined and her ability to continue to live with Dan and his family is no longer possible.

Dan makes an appointment for Mavis to be seen and assessed by the local Age Care Assessment Team. Mavis’s assessment indicates that she is medically qualified to enter Residential Aged Care.

There is a residential aged care facility within a five-minute drive of Dan’s home and does have several beds available. The facility informs Dan that they require a $350,000 Refundable Accommodation Deposit unless Mavis is classified as a partially supported resident. If this is the case, she will not have to pay the deposit.

Dan and his wife are extremely concerned as they do not have the money to help Mavis pay the deposit and are unsure as to what they need to do.

A well-meaning close friend explains that for mum to be classified as a partial supported resident, Mavis needs to have assets of less than $173,000. Dan knows Mavis has a total of $181,000 in assets. The well-meaning friend then explains that Mavis could gift $10,000 to Dan and his family before she enters aged care and fills in all the necessary forms, ensuring Mavis would be classified as a partially supported resident and would not have to pay the Refundable Accommodation Deposit of $350,000.

Dan is relieved. He believes that mum is in a better financial position and he no longer has to worry about having to meet some of Mavis’s costs.

Mavis enters the aged care facility and has settled in well. The situation seems to be well under control and Dan is very grateful to his well-meaning friend.

Unfortunately, Dan’s relief is short lived.

Three weeks after Mavis enters the aged care facility, Dan, as Mavis’s EPOA, receives a letter from Centrelink advising him of her fees in the home – Basic Daily Fee of $52.71 per day and a Daily Accommodation Charge of $57.69 per day.

Dan decides it is now time to speak to an expert, to try and understand what went wrong.

The expert explains to Dan how Mavis’s assets are assessed in calculating her fees, especially the amount of the Daily Accommodation Charge.

The expert explains to Dan that his decision to have Mavis gift $10,000 to his family, reducing Mavis’s assets below $173,000, has been an expensive mistake.

If Mavis had not gifted the $10,000, her asset would have remained at $181,000 and she would have had to pay the Refundable Accommodation Deposit of $350,000. At first glance, this appears to place her in a worse situation.

However, the interest which payable on the unpaid Refundable Accommodation Deposit is currently 4.01%, the equivalent of a Daily Accommodation Payment of $38.45 per day. This is a saving of over $7,000 per annum on the Daily Accommodation Charge of $57.49 per day that Mavis is now paying.

Dan’s well-meaning friend may have had the best intentions, but by relying on the advice of someone who is not an expert, Mavis’s financial position is now worse.

Mavis is not destitute, and she does have the cash to meet the shortfall in her expenses, but it should be a lesson for everyone, “sometimes a little bit of knowledge can be a bad thing”. Paying for appropriate advice is always a far better option.

*I certainly hope that this anomaly in the legislation where a person with less assets is worse off than the person with more assets will be one of the issues corrected in the coming years.