By Mark Teale on 1 July 2020
(Realise Your Dream)
It is not unique story and I am sure happens on a regular basis. I would like to tell you this story as it highlights the complexities of aged care and the financial and emotional stress that can arise for not just one person, but in this case, two.
Here is a brief outline of the circumstances.
- • Mum (Let’s call her Anne) is 87 years of age and not in very good health. For the last 6 years she has been cared for by her daughter (let’s call her Jayne) who is now 61 years of age.
- Anne is in receipt of a full age pension; her only assets are her home which she has lived in for over 50 years (because of its location is worth over $1 million) and $43,000 in a bank account.
- Her daughter Jayne, is single, a qualified nurse and has not worked for the last 6 years while she has cared for her mum. She is in receipt of a Carer Payment and a Carer Allowance. Jayne does not own a house and has lived at home with her mum since her father passed away 20 years ago.
- Anne’s health has been in continuous decline, and she now needs to enter residential aged care. So, what happens next?
Anne enters residential aged care as a low means resident, meaning she does not have to pay a Refundable Accommodation Deposit (RAD). Her only cost is the basic daily fee of $52.25 per day or $731.50 per fortnight. Anne is in receipt of the full age pension $944.30 per fortnight, so there does not appear to an issue – what could go wrong?
At the time of her entering aged care, Anne’s home is exempt because Jayne is still residing in the home, has done so for many years, and is receiving an income support payment – the Carer Payment. Under the legislation Jayne is classified as a “protected person”.
After a period of 14 weeks the Carer Payment ceases as Jayne is no longer caring for her mum and is therefore no longer entitled this payment. Jayne then decides she is going to return to nursing and commences work at her local hospital, continuing to reside in her mum’s house.
Unfortunately for everyone, life is about to become a little more stressful.
As Jayne is no longer in receipt of an income support payment, mum’s home becomes an asset for the purpose of calculating the aged care fees.
Anne’s status as a low means resident remains and she does not need to pay a RAD, however she now is required to pay a Daily Accommodation Charge (DAC) of $58.19 per day or $814.66 per fortnight on top of the basic fee. Mum’s total fees now are the Basic Daily Fee of $52.25 per day plus the DAC of $58.19 or $1,546.16 per fortnight. Mum’s only source of income is the full age pension $944.30 per fortnight – she is just over $600 a fortnight short of being able to pay her fees.
Jayne, who is now working, decides she will pay the difference from her salary; which solves the problem in the short term at least.
However, two years after mum entered residential aged care, she loses her pension because of her assets – her one-million-dollar home has becomes an asset for the purpose of calculating her age pension entitlement.
Mum’s cash in the bank has reduced to just over $20,000 and even though Jayne is still working, her salary will not cover her own living expenses and Anne’s total aged care fees. Anne’s fees are no longer around $600 a fortnight short in paying her fees, she is now short $1,546.16 per fortnight!
The options available are not many.
They could sell the home, which is incredibly stressful for Jayne. Even though she has an enduring power of attorney and could sell her mum’s home, she is reluctant. It’s not the financial perspective, but the emotional and sentimental impact of selling the family home. After all, this is her mum’s home and she has also lived In the home for over 20 years.
Jayne considers borrowing against the value of the home and paying a Refundable Accommodation Charge (RAC) of $433,500 to the aged care facility to ensure mum no longer has to pay the DAC. The money borrowed and secured against the value of the home will reduce the value of Anne’s assets to below the threshold and she could then be entitled to an age pension of $591 per fortnight.
Mum’s aged care fees will change to the Basic Daily Fee of $52.25 per day, with a Means Tested Care Fee of $18.27 per day, making the total fee payable $987.28 per fortnight.
Jayne would then be responsible for both the short fall in her rmum’s aged care fees as well as the mortgage repayments on mum’s.
In this particular scenario, Jayne had not spoken to anyone before mum had to enter aged care and so she had no idea of the decisions she would have to make. As such, she was not prepared either financially or emotionally with the issues she had to face. The aged care legislation is complicated but more than that, it is exceedingly emotional, and people should be prepared for and aware of the decisions that they may need to be make before they have to make them.
Talk to an expert who understands what is required so that you are prepared, and nothing comes as a shock – don’t leave it until the last moment, decisions made under emotional stress are generally not made with the clearest of heads.
PK believes people have the right to accurate, affordable and unbiased information that addresses all aspects of their preferred retirement lifestyle, thereby giving them the opportunity to make informed decisions that will empower them to live out their lives with dignity, certainty and security.
Tealey’s ambition is to change how people think about their retirement, he wants people to dream, plan and realise retirement is not defined by a magical age prescribed by the legislation.
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