Do we have to sell the home to fund aged care fees?
There are many decisions to make when someone you love needs to move into residential aged care. One of the most common questions our specialist Lifestyle and Care advisers are asked is: Should we sell the family home to fund the aged care fees?
Families are often worried about the need to sell the home and ask about alternative options.
Upon entering permanent residential aged care, a resident has 28 days to decide how they would like to fund the accommodation costs, and while some may choose to sell the home, there is no requirement to do so.
Residential aged care providers can charge a Refundable Accommodation Deposit (RAD) for those permanently entering unless the resident is assessed as low means.
However, there is no requirement to pay a RAD in full and upfront. If funds are not available, a Daily Accommodation Payment (DAP) can be paid. Alternatively, aged care fees can be paid as a combination of both.
Refundable Accommodation Deposit (RAD)
RADs can vary between operators depending on the type of room. They can be more than $1,000,000 but most are in the range of $450,000 to $550,000. Often the major asset available to pay the RAD as a lump sum is the resident’s home.
Daily Accommodation Payment (DAP)
This is interest on the RAD which is currently* 4.89% pa set by the Commonwealth Government. For example, if the RAD was $500,000 then the equivalent DAP would be $66.99 per day ($500,000 x 4.89% divided by 365). The interest rate is fixed at the date of entry to care.
An important consideration is the treatment of the family home for Centrelink/DVA purposes.
Where the home is kept, it is an exempt asset for two years from the date the resident enters permanent aged care. After two years the full value of the home is assessable. In this case the aged care resident could lose or have their pension reduced.
Doreen, a widow, has a home worth $650,000 and cash of $150,000. The aged care home has asked for a RAD of $500,000. Doreen’s family do not wish to sell her family home. They have organised to pay $100,000 part RAD in cash and the rest by DAP. Her DAP would now be $53.59 per day ($500,000 minus $100,000 = $400,000 at 4.89% divided by 365).
If paying the DAP from Doreen’s cashflow was a concern, she can request the aged care home to take the DAP out of the partial RAD that was paid. This will assist cashflow but will reduce the RAD. If the RAD is reduced to zero Doreen will be asked to top it up or pay the DAP on her $500,000 RAD.
Aged care financial matters can be complex, so it’s important you are aware of your options and how they apply to your family’s circumstances. We have a team of specialist financial advisers who can help you make these important decisions.
This includes the long-term impacts on aged care fees, income (including government benefits) and assets, including the family home.
Our team of specialist advisers have helped thousands of families make the move with confidence.
* as at 18 May 2020