Aged Care Financial Planning Strategies To Reduce Fees & Costs

Helping a loved-one move into aged care can be an emotional and financially-stressful time. Understanding aged care rules and applying them to the specific circumstances of your mother or father, through a variety of aged care financial planning strategies, can lessen the financial burden at an already difficult time.

This article provides an overview of the most common and effective aged care financial planning strategies.

Aged Care Financial Planning Strategies

The best thing about aged care financial planning strategies is that they are simple in nature and easy to implement, but can greatly impact the financial outcome of someone moving into care.

The strategies that we’ll be covering include:

1. Ensuring aged care fees can be covered for life
2. Determining whether or not the home should be sold
3. Strategies to reduce aged care fees
4. Strategies to increase Age Pension entitlements

Let’s take a look at each one individually.

1. Ensure Aged Care Fees Can Be Covered for Life

The most important aged care financial planning strategy, above all else, is to ensure that aged care fees can be covered for the remainder of your loved-one’s life.

This is achieved by ensuring that there is adequate income and available assets to cover such fees and understanding when such fees will fall due. Importantly, aged care fees will vary throughout a resident’s stay in aged care for a number of reasons, so you should project the fees that will be required in the initial year as well as subsequent years.

The easiest way to ensure aged care fees can be covered for life is to calculate all income expected to be received (e.g. Age Pension, superannuation pensions, overseas pension, dividends, rent, etc) and then deduct the aged care expenses to be incurred. If there is a cash flow shortfall, then ensure there is adequate bank savings available to cover that shortfall for each year.

2. Determine Whether Home Should Be Sold

There are four main factors that help decide whether the former-home should be sold or retained and rented. These factors are:

• Someone living in the home – If a spouse, family member or other relative lives in the house, then it might not be an option for the home to be sold.
• Sentimental or estate purposes – It might be a preference for the home to be retained, so that it can be passed on to surviving family members.
• Investment – The property might have the ability to provide good rental income and growth, so it could be a wise decision to retain the home.
• Funds required – Whether or not the potential sale proceeds are needed to cover aged care fees and RAD.
• Financially beneficial – Whether or not it is advantageous to sell the home to reduce aged care costs and/or improve Centrelink entitlements, or retain it for the same reasons.

The decision to sell or retain the family home is unique to each situation, based on the considerations above.

A former-home is favourably assessed for Centrelink for the first two years and assessed at a lower rate for aged care means-tested care fee purposes indefinitely, which means it can be beneficial to keep the home and maybe rent it. However, if there are insufficient other funds to pay the RAD in full, or cover aged care fees on an ongoing basis, then selling the home could be a better option.

3. Financial Planning Strategies to Reduce Aged Care Fees

No-one wants to pay more fees than they need to, right? Some aged care fees are set by the aged care home itself, while others are set by the Government,  as follows:

Fees Set By Aged Care Home

The fees set by the aged care home include:

• Refundable Accommodation Deposit (RAD)
• Additional Services Fee

In order to reduce the fees set by the aged care home, a simple aged care financial planning strategy would be to find a lower cost aged care home, or one that does not charge an Additional Services Fee. By doing so, you can easily reduce aged care fees by thousands of dollars each year.

Another option is to try to negotiate the fees. It is possible to attempt to negotiate with each aged care home for a lower RAD or Additional Services Fee. However, due to the demand for rooms at times, many aged care homes will be unwilling to budge on price.

Fees Set By the Government

The Government provides a certain level of funding towards aged care, with the remainder being passed on to the resident. The aged care fees set by the Government include:

• Basic Daily Care fee
• Means-Tested Care Fee

When it comes to fees set by the Government, the Basic Daily Fee is a standard fee that everyone must pay and is set at 85% of the single person Age Pension rate.

The Means-Tested Care fee on the other hand is able to be reduced, through the reduction of assessable income and assets. Aged care financial planning strategies to reduce the Means Tested Care fee include:

• Gifting money within the allowable gifting limits.
• Prepaying a funeral or purchasing a funeral bond up to the allowable limits.
• Retaining a former home of which only $197,735 is assessed under the assets test.
• Contributing funds towards the RAD, which is assessed for the asset component of the Means-Tested Care fee, but not the income component.
• Purchasing a favourably assessed annuity income stream product.

Strategies to reduce aged care fees can go hand-in-hand with strategies to improve Age Pension payments, so that the costs of aged care can be covered for longer.

4. Financial Planning Strategies to Increase Age Pension in Aged Care

There are several strategies to increase Age Pension payments while in aged care. Increasing Age Pension payments is important, because this income will often contribute largely to how aged care fees are covered.

The aged care financial planning strategies to increase Age Pension payments include:

• Gifting money within the allowable gifting limits.
• Prepaying a funeral or purchasing a funeral bond up to the allowable limits.
• Retaining a former home which will remain completely exempt under the Assets Test for the initial two years of entering care. After that, it will become fully-assessed.
• Contributing funds towards the RAD, which is completely exempt for Age Pension assessment purposes.
• Purchasing a favourably assessed annuity income stream product.

Structuring income and assets correctly can result in significantly higher Age Pension payments.

Common Aged Care Strategy Mistakes

Financial mistakes are often made upon entering aged care. Most people don’t even know they’re making mistakes, because unless you seek professional advice, there is no-one there to tell you whether there is a better way to do things.

Some of the most common aged care strategy mistakes are:

• Contributing too much to the RAD and not leaving enough cash holdings to cover any shortfall in cash flow.
• Not contributing enough to the RAD and paying a DAP which can be greater than the investment earnings generated by savings allocated elsewhere.
• Having family members contribute to the RAD, which increases assessable assets, resulting in higher aged care fees and lower Age Pension payments.
• Having family members cover fees, which could result in the resident’s assets being preserved and therefore paying higher aged care fees and receiving lower Age Pension payments.
• Gifting too much to family members in an effort to ‘hide’ money from Centrelink, only to find out that Centrelink will continue to assess excess gifting amounts, but now the resident has insufficient funds to cover aged care costs.
• Setting up complex structures with the intention of reducing assessable assets, only to find out that Centrelink has decided to continue assessing the assets and now you are stuck paying higher accounting costs.

At Core Value Aged Care Advice, we will help you navigate the complexities of aged care and find the best financial solutions for your family. If you have any questions or concerns regarding your situation, please call us on 1300 944 011 to speak with an expert aged care adviser today.

Frequently Asked Questions

Here are some frequently asked questions in relation to aged care financial planning strategies.

Do I Need to Sell the Family Home to Pay for Aged Care?

You do not need to sell the family home to pay for aged care in Australia. This is a common misconception. In fact, it can sometimes be beneficial for aged care assessment and Age Pension assessment purposes to retain the family home. Professional financial advice will help you determine whether it is better to sell the family home to pay for care, or keep it.

How to Reduce Assets for Aged Care

To reduce assets for aged care assessment purposes, you should first consider what is an assessable asset, calculate how that will impact aged care fees based on the asset limit amounts and then decide on whether any strategies should be implemented to reduce your assessable assets. A list of ways to reduce assets for aged care is shown above.

You might also like:

• How to Reduce Assets for Aged Care
• How To Avoid Selling Home To Pay for Care