The basics of aged care funding.
A family member needing to move into aged care can be a difficult time emotionally, without the extra concern and decisions that need to made on funding an aged care place.
Aged care fees are very complicated. They can be broken into upfront and ongoing costs.
Below we summarise some of the basics of aged care funding:
On entering aged care residents have up to 28 days after entry to decide how to pay for their accommodation. They have the option of paying their accommodation payment or contribution as:
- A fully refundable lump sum referred to as a refundable accommodation deposit (RAD) or refundable accommodation contribution (RAC);
- Periodic payments referred to as a daily accommodation payment (DAP) or daily accommodation contribution (DAC); These are effectively an interest charge on any outstanding RAD amount. The current interest rate is 8.15%.
- A combination of lump sum and periodic payments.
Facilities cannot accept a RAD/RAC within 28 days after entry, that will leave the resident with less than the minimum permissible asset amount currently $58,500.
The costs of a refundable accommodation deposit vary across facilities and are currently capped at a maximum of $550,000, unless the facility has sought government approval to have a higher RAD.
Example: Glen is needing to move into aged care. He is not a low means resident. The aged care facility has a RAD of $450,000.
Glen can either:
- Pay the $450,000 as a lump sum refundable accommodation deposit.
- Not pay a lump sum and incur a non refundable Daily Accommodation payment of $100.48 per day.
- Agree to pay a combination of a lump sum and DAP based on available funds.
As well as allowing for upfront entry costs to the age care facility, ongoing costs also need to be considered.
Ongoing fees generally include:
- A Basic Daily Care Fee, set at 85% of the maximum annual single person aged pension. Currently $60.86 per day.
- A Means Tested Care fee. This fee is means tested and based on a residents income and assets. The means tested care fee can be anywhere from $0 to $358 per day. Importantly with the means tested care fee an annual cap and lifetime cap apply. The current annual cap is $32,718.57 and lifetime cap $78,524.69.
- An extra service fee facility . This fee is set by the facility and can be charged for providing higher standard of accommodation, services or food.
Example: Glen has now entered aged care after agreeing to pay a refundable accommodation deposit of $450,000. He has sold his home for $1 million to fund to RAD and has $550,000 remaining in a term deposit.
Glen’s ongoing daily aged care fees are:
- A basic daily care fee of $60.86 per day – $22,214 per annum.
- A means tested care fee of $40.45 – $14,764 per annum.
- An extra service fee charged by the facility of $10 per day – $3,650.
Additional consideration for those entering aged care include:
- What to do with the family home?
- How is the entry to aged care to be funded?
- Are assets being sold to fund entry to aged care?
- What are the tax implications and impact on cashflow?
- What are the effects on the Centrelink Pension with the overall decision? including the treatment of homeownership and non-homeownership with the payment of a refundable accommodation deposit.
- Is their enough income to meet the ongoing aged care costs.
- What other options are their to optimise the residents overall position on entering care.
- What are the estate planning implications of such a decision.
If you would like to learn more about aged care funding please contact your Johnsons MME Financial Adviser to seek appropriate financial advice before proceeding.
Director - Financial Advisory
Senior Financial Advisor - Financial Advisory
Johnsons MME Financial Advisory Pty Ltd (ABN 30 141 828 033) have our own Australian Financial Services Licence (AFSL 353848) and as a result are able to provide financial planning advice and access investments for our clients, with commission free solutions.