The move to aged care can be an overwhelming experience.
Limited funds, apart from the equity in the family home, often create a scenario in which the person entering care pays what they can, and the children “pass the hat around” to provide a “top up” for the Refundable Accommodation Deposit (RAD).
This is not a purely altruistic exercise, as such moneys save the 6.01 per cent charged by the aged care operator on any outstanding balance.
Rachel Lane from Aged Care Gurus explains: “From a pension perspective, there is no harm in such a strategy – the RAD is an exempt asset for the purposes of calculating the pension. Unfortunately, it is a completely different story from an aged care point of view.
The amount someone pays as a RAD is included in the assets test for calculation of the Means Tested Care Fee.”
This is a government charge to offset some (or all) of their funding to the aged care facility. In calculating the Means Tested Care Fee, the government will levy 50c per $1 of income above $25,711/year (single) or $25,243/year for a member of a couple, plus 1 per cent on your assets between $159,423 and $385,270 and 2 per cent on the assets above $385,270.
So the unexpected consequence of the children helping their parents is that it increases their Means Tested Care Fee, since the amount lent by the kids is treated as an asset.
Shirley, 86, is moving from a retirement village to aged care. Her exit entitlement from the village will be$180,000, and she has $10,000 in the bank and a few personal assets. The Market Price at the facility is $450,000. If Shirley pays a RAD of $145,000 she would be liable for interest at 6.01 per cent on the remaining $305,000. That’s about $50/day.
In addition, Shirley would need to pay the Basic Daily Fee of $48 a day and a small Means Tested Care Fee of about $1 a day. Her cost of care would be $99 a day or $36,135 a year, while her income from the pension plus some interest would only be $23,500 a year.
If her children lent her $305,000 the basic daily fee of $48 would be unchanged, there would be no interest, but her Means Tested Care Fee would increase to around $12 a day or $4380 a year. While her costs do reduce to $60 a day, she is still being penalised $11/day because money lent to her is treated by the government as an asset.
The situation is ludicrous and is caused by the government’s inability to get Centrelink and the aged care authorities on the same page. The issue appears to be created by the fact that the RAD is an exempt asset for Centrelink purposes, and Centrelink perform the means testing arrangements for aged care.
In Centrelink’s view of the world you cannot have a debt offset an exempt asset (remember the RAD is exempt for pension purposes).
Rachel points out that one family, the Whitbys, successfully argued before the Australian Administrative Tribunal that the money they lent to their mother should be disregarded as an asset. It was a long process, with appeals.
Yet despite the AAT’s position, the government attitude remains unchanged.
Martin Checketts, of Mills Oakley’s lawyers, agrees that families should take steps to argue that Whitby applies, and ensure asset protection. “It is amazing how many families enter into loan arrangements without proper documentation,” he said. “This can create two issues; it can increase care costs because the principles in Whitby don’t apply, and they can struggle to demonstrate that the loan is a liability of the estate which must be repaid before the other assets are divided.”
Once again, it demonstrates the importance of knowing how the system works when a family member is moving into care.