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Sell the house? Rent out the house? Do nothing?

The first question for someone going into residential care is normally about the home.
The decision that is made can have a significant impact on the financial outcomes for the

resident.
Putting aside all discussion around emotional or sentimental aspects around what
happens to the property is one thing. Getting to the bottom of the financial impacts is
also complicated.
Let's have a look at some of the important issues to consider with the residence.
Assessment of the former residence in means testing
The financial benefit of retaining the former residence can be compelling, but it does
hinge on a number of separate outcomes that need to be viewed all together to make
the right decision.
Means testing will impact the resident in 2 ways:
1. The Means Tested Care calculation# includes the value of the house up to a
threshold*, which is currently set at $155, 823. This threshold is very important. It
means that the value of the house over this threshold is not considered in tests. This
can represent a great opportunity if the resident is able to manage the cost of care
while hanging onto the house.
2. The house is excluded from the tests for the Centrelink Aged Pension. Further, if the
house is rented out while the resident is in care, the rental income is not included in
the tests that determine the amount of aged pension the resident is eligible for**
The first step is for the family to get a clear picture of the cash-flow outcome of selling or
retaining (and renting out) the property. This will be particularly useful when the realities of
the cost of aged care start to kick in - i.e the bills.
It also makes sense to understand what is going on, and how things will look in the future,
because amount of money moving around can be frightening.
There can be a rush to sell
Getting to the bottom of the options available is difficult, however the proceeds from a
sale are easy to understand - especially to a provider who wants the comfort of a chunk
of money to cover the cost of accommodation.
You do have a choice, and you should make sure you understand the choices that are
available.

It's not easy though.

An example
Consider a basic example of a single older Australian with a house worth $400,000 and
financial assets of $200,000.
The aged care provider being considered has offered a bed with a RAD of $250,000.
How should the resident proceed?
When working with a family in this situation, the first step is to work out some pathways
to demonstrate options. Even in a simple situation there can be a lot of choice, here are
3***:
1. Keep the house (for now). Keep the money in the bank. Pay all fees (e.g the full
DAP) without handing over a lump sum. This is the status quo position for most and changes from here can be daunting.
2. Keep the house. Pay some of the accommodation costs as a RAD (say $150k).
House remains vacant. (This is the same as 1, however some cash is handed over)
3. Pay down as much of the RAD while leaving some money left in the bank (say
$50k), and rent the house out. (same as 2 - but house is rented out)
4. Sell the house, pay the RAD in full.
What is the result?
See for yourself - its complex. Try the numbers below, then look at the notes.

Assume net rental income and available investment yield is 3% For illustrative purposes only. Not to be relied upon.

A few things to note

This example should highlight some key issues with these calculations:
1. Paying the accommodation costs by Daily Accommodation Payment is rarely
worth doing if you have money available to pay the lump sum RAD. In these
calculations, we have assumed the resident gets 3% on money in the bank. This
does not compare well to the interest rate of the Daily Accommodation payment
(currently at 6.63%). Why keep a loan outstanding and get a low rate in the bank?
Look closely at the difference between scenario 1, and scenario 2 to see why.
2. Paying the RAD reduces assessable assets for the Centrelink Pension. This is
in addition to saving you interest cost. This means the resident gets a higher pension
for paying the RAD. An added bonus! Look at the aged pension line between
scenario 1 &2.
3. Selling the house results in a higher level of assessable assets for the means tested
care fee. You will see this clearly in scenario 4. This cannot be undone. If you have
choice, this decision must be made carefully. Note the Care Fees goes up, and
Centrelink aged pension eligibility changes.
4. In this case, the alternative of keeping the home, renting it out, and paying some of
the accommodation cost by a Daily Accommodation Payment works well...on
paper. Now the resident and their family know the numbers they can consider
practical issues - like what it means to be a landlord.

The residential care fee estimator

I have looked carefully at ways to help my clients use the care fee estimator in
conjunction with other resources to get better control of the numbers. It's really hard.
These are the reasons:

The care fee estimator does not help the user clarify Centrelink Pension outcomes
as different scenarios are considered. The Centrelink pension is a number that is
inputted. The reality is that different decisions available to the resident and their
family in the move to aged care will result in different Centrelink aged pension
outcomes. This work is not completed by the government calculator.
The care fee estimator does not consider changes to how assets are assessed for
the means tested care fee, depending on whether the resident uses financial assets
(e.g savings) to pay a RAD or tp pay by DAP. $200,000 held in the bank is included in
the tests and also deemed. If $200k is paid as a RAD it is not deemed, but still
considered in the test. Very confusing.
And my final gripe with the care fee estimator - it does not tell you how terrible it is
to pay by Daily Accommodation Payment if you have the money available to pay a
RAD.

How we can help

Getting your strategy right is complex. The impact of not properly understanding
decisions made can be expensive.
Let us apply our skill to your situation. We work fast, and we are effective.
Please call to discuss on 0412 181 031

Disclaimer
Every situation is different, and even if your situation is close to the one discussed, your
options may be significantly different. This is because the thresholds and system can work
in odd ways. Further, some pensions are assessed differently (e.g some DVA & disability
pensions)
The best example to work from is one we have presented to you based on your own
situation. Call us 0412 181 031

#The Means Tested Care Fee calculation includes the calculation for Accommodation
Support Payments. In the case of a house with a value greater than $155k, there would
not be any support offered.
*In this discussion we consider a single resident with no dependents or carers.

**It should be noted that there may be tax implications, like income tax on rental income
and land tax, as well as a tax offset available via the Net Medical Expenses Rebate, and
some conditions may apply.
***More alternatives are outside the scope of this post.
Please note that assumptions have been made, and this is by no means an exhaustive or
conclusive example. For illustrative purposes only, and not to be relied upon.
Post a comment / /

What every real estate agent should know about Residential

Aged Care
Real estate agents get a lot of calls about houses that are soon to be vacant because an
elderly resident is going into full time residential care.
As real estate agent, you have a great opportunity. You may be able to put yourself in a
position of great service to families going through a tough time.
Here is a guide for real estate agents. Lets look at some background to that call, and
why it is incredibly difficult for the person on the end of the line, trying to make sense of

what choices they have available to them at this time.

Panic!
According to the Department of Social Services, nearly 44% of Australians take up an
aged care bed with one month of being assessed as needing full time residential aged
care.
About 20% of older Australians are in an aged care bed within 7 days.
This is a very short timeframe for making any important decisions, let alone making a
decision with all the emotional and logistical upheaval that is associated with the move
to residential aged care.

Table 28 : Proportion of new entrants to permanent residential care entering within a specified period after an ACAT
assessment, by level of care at entry, during 2012-13
Source: Report on the operation of the Aged Care Act 2012/13. Australian Govt Dept Social Services. Table 28

Being available with information and advice to help your client over this short time frame
is an advantage - as there will be a number of scenarios that the decision makers will need
to consider before deciding on a course of action.

Choice
If you are being called about the house in a transition to residential care, you are not
being called with a job offer, you are being called because the family is trying to work out
what choices they have, and they need specific information to help them make a
decision.
These choices are challenging to clarify, that is why you are being called.

The family will want to know a sale price and a potential rental income.
These numbers will need to be realistic, because the decision maker is trying to work out
the best way to manage mum or dads affairs while in care, and the information you
provide is going to be very important.
It can make a big difference
Did you know that as soon as the principle residence is sold, the cost of aged care will go
up?
Do you realise that the value of the property (over a threshold amount), and any rental
income will not included in the tests the government applies to aged care residents in
working out how much they will need to contribute to the cost of care?
Perhaps your competitor will.
Business will go to the agent that is keen to work with the family in making sure all their
alternatives are considered carefully - and this means having a good idea of the strategies
that will reduce the costs of residential aged care. Or at least being aware of them.

Just sell
Some agents (and some aged care providers), will suggest a quick sale of the property to
pay for care. Even the government calculator on the myagedcare website is pretty light
on on the detail required to make a well informed decision.
The agent that highlights the choices available will get the business.
Take a look at our blog Sell? Rent out? Do nothing? to see an example of just one
situation.

Make the effort

By working with families to ensure they make decisions that are based on a clear and
comprehensive review of the alternatives available, you will be in a position to become a

trusted advisor.
We can help. Phone 0412 181 031

Post a comment / /

How accommodation payments work

If you have started looking at aged care options you would be reading about the
Refundable Accommodation Deposit (RAD) and the Daily Accommodation Payment
(DAP).

Its worth understanding how they are related.

Just one part of Residential Aged Care Costs

Residential aged care costs are divided into 4 types:
1. A basic fee
2. An accommodation payment (by RAD or DAP or combination of both)
3. A means tested care fee
4. Fees for extra or additional services.
The potential for government support will apply to your accommodation payments (2),
and your means tested care fee (3). This level of support is determined by one single test.
(Request our infographic here).
If you are eligible for government support for your accommodation payments, you
should read this insight as well as our insight around government help for
accommodation - Mind the Gap.

The DAP is related to the RAD

All facilities must publish their accommodation cost as a daily payment (DAP), a lump
sum payment (RAD), or a combination of both.
The combination of the two can be almost endless, and any single combination probably
not that useful, except to demonstrate that the resident is able to mix their
accommodation costs between a lump sum payment and a daily payment however they
choose.
Working out the DAP equivalent for a RAD is very straightforward, all you need to know is
the interest rate that links them.
This rate is known as the Maximum Permissible Interest Rate (MPIR).

What is the Maximum Permissible Interest Rate (MPIR)?

We like to think of the Maximum Permissible Interest Rate as a kind of equivalent to how
much an aged care provider may have to pay to borrow money for the cost of building a
bed.
So if a "bed" costs $300k to provide (including all the facility, the land and other costs),
the resident can either stump up the $300k to cover the cost of the accommodation, or
reimburse the provider for their interest cost as if the provider had to borrow the money
to offer the resident the bed.
This interest cost is the MPIR, and it should probably reflect what the facility would have
to pay as an interest rate to borrow money. (We could be wrong here - this is a best
guess)
To the resident, it probably doesnt mean much more than a choice between stumping
up the cash (which is fully refundable and government guaranteed), or paying an interest
rate on the cost of the bed - and a high one at that.
The MPIR is currently set at 6.69%. While it can change over time, for the resident, it is
fixed at entry.
There are not many investments that will pay a better rate than 6.69% (especially for no
risk) so it is worthwhile paying as much of the RAD as you can (i.e instead of paying at the
expensive interest rate). The question for the resident will be around how much cash they
have to apply to the RAD, and how much cash they can afford to have tied up in a RAD
when there are other costs - like the Means Tested Care Fee, the Basic Daily Fee and fees
for extra or additional services.

MPIR, RAD, DAP - how they fit together

If you are clear on the "pay by interest/pay by lump sum" story outlined above, this should
be easy to work out.
Say the room is offered for a RAD of $100 000, and the resident wants to pay by Daily
Accommodation Payment (DAP), instead of handing over the $100k.

Simply work out the yearly interest cost, i.e $100 000 at the MPIR of 6.69%. The annual
amount is $6 690. Next step, divide this by 365 to get a daily rate - and presto - there is
your DAP - $18.33.
The resident is basically paying for the cost of the room at a high interest rate.
If the resident wants to pay $50 000 as a lump sum, and pay the remainder as a Daily
Accommodation Payment - the calculation looks like this:
$50 000 at 6.69% = $3 345. Divided by 365, this is $9.16 per day. (This is in addition to
handing over $50k as a RAD)

Another RAD/DAP combination - paying the DAP from the RAD

A unique part of the choice available is for the resident to pay the Daily Accommodation
Payment out for the Refundable Accommodation Deposit.
It works a bit like this: the resident pays part of the RAD (i.e a chunk of money), then the
DAP is drawn down from the RAD. Effectively, this daily payment slowly increases as the
money originally handed over is drawn down.
Its a little like a reverse mortgage, except the RAD does not offer any capital growth.
We will be looking more closely at this one. As the facility has the right to demand a
minimum amount of RAD be held. This will need to be structured carefully to minimise
surprises down the track.

RADs and the Centrelink Aged Pension

Funds handed over to the aged care facility to pay a lump sum deposit (RAD)
are not included in Centrelink tests and therefore not assessable. We talk about why the

Care Fee Estimator should tell you about this here.

This is a big advantage to be had when paying for accommodation by a lump sum deposit
(RAD) and is a very important source of government support while in care.

Just pay by RAD, right?

Paying accommodation costs by handing over the full amount (i.e paying the full RAD), as
cash, will save the resident paying a high interest rate, and this is obviously better than
keeping the money in the bank.
Further, any money paid over to the RAD will not be included in Centrelink Tests for the
Aged Pension. So the resident should expect improved aged pension eligibility. More
money coming in means more government help and more manageable cash flows.
Is it that simple?
Unfortunately not. In many cases, a resident will not have the money available to pay the
lump sum RAD and still have enough left over to fund the other costs.
Getting the balance right is a huge challenge.
Later Life Advice can help.
Post a comment / /

T he Government and aged care accommodation costs: more

complexity
If an older Australian qualifies for Government support for the cost of residential aged
care accommodation, they will need to be clear about just what kind of bed is available
to them.
A clear knowledge of accommodation payments (see here), is the starting point for
understanding this challenge.
Clarifying and understanding Government support for aged care accommodation costs
increases the complexity for older Australians and their families as they seek to make the
best decisions around residential aged care.

Government help for accommodation costs: How it works

Government asset and income testing will determine the level of care and
accommodation support that will be provided to the resident. (Get our infographic)
In the case of accommodation support, the resident is ineligible if assessable assets are
greater than $154 179.
If the resident has a home, and there are no spouse or dependents remaining in the
home, the home is assessable up to a value $154 179. This means that a resident going
into care with a house valued at more than $154 179 (without a spouse or dependent still
living there) will not be eligible for any accommodation support.
The extent that the government will provide support will be at its highest for those in a

low assessable asset and income position (e.g assets less than $45 000), and the amount
of available support will taper down until the assessable assets reach $ 154 179.
(Note that there is an income component to the test also - we talk mainly in terms of
assets for simplicity)

Full Pension does not mean full accommodation support

The Centrelink Aged Pension does not include an assessment of the home.
Residential Aged Care Means Testing will take the house into account if there is not a
spouse or dependent remaining in the home.
Its an important difference that could mean someone on a full pension moving to
residential aged care will have their home included in their means testing.

How much does the government help?

The government has a maximum rate known as the Maximum Accommodation
Supplement Amount.
This is currently set at $52.49.
So if the resident is eligible, the government can provide accommodation cost support at
a rate of up to $52.49 per day.
There is another way to look at it (we talk about this more here).
$52.49 per day is essentially a Daily Accommodation Payment (DAP)
A $52.49 DAP is like a RAD of:
$52.49*365/6.69% = $286 380

How does $286 380 compare to the quoted RAD of the bed you are looking at?

What does this mean anyway?

If the RAD is higher than $286 380, and the resident is eligible for full accommodation
support ($52.49 per day), then the resident is going to have to find money to pay the
difference.
Not surprisingly, a resident eligible for the highest level of accommodation support is
unlikely to have the means to support other cashflow.
Meanwhile, if you type into the Residential Care Fee Estimator an asset base of $40 000,
then the estimator tells you that the resident will not have to pay any accommodation
costs (at all).
This does not mean that the provider with a bed with a RAD of more than $286 380 has
to offer this bed to someone who is assessed as being eligible for the full amount of
accommodation support.
Consider a bed with a RAD of $400 000. The Daily Accommodation Payment in this bed
would be ($400 000 * 6.69%)/365 = $73.31.
Now if the maximum level of government contribution to the cost of care is $52.49, and
assuming the resident is eligible for the full amount, then who is going to pay the
difference?
They can pay as a DAP (per day) : ($73.31-$52,49) = $20.82
Or by a lump sum - ($20.82*365)/6.69% = $110 134
Just be careful when the Residential Care Fee Estimator tells you that you cannot be
asked to pay an accommodation contribution. This doesnt mean that the facility has to
offer you a bed.

Then there are the permutations

Note that there are permutations of this - e.g the eligibility for the government support is
on a sliding scale. If the resident is eligible for say $20 per day of support, they would be
assessed as having to contribute the balance - known as a Daily Accommodation
Contribution (DAC)
The bed the resident may be considering may have a DAP that is less than the
government maximum. This means that the resident may not be eligible for the
maximum amount of support, yet may still have the government cover their
accommodation costs.
There are many variations here, and this can be very confusing for older Australians and
their families.
We can help you understand your options and make more informed decisions.
Contact us for help.
Post a comment / /

Are you being served?

How much do you need to have before the government stops

helping?
Consider a hotel that guarantees
you will pay no more than $25
000 a year for your room service.
The hotel manager then proceeds
to charge you $240 a night for 3
months, with the rest of the year
free.
Not your normal hotel

This may not suit for 2 reasons:

1. You may have planned to be spending $68.50 a night (this is the average of $25 000
over a year), and may not be ready to pay $240 a night, even though over a year its
the same, and;
2. If you leave after 3 months, you have effectively been paying staying at a rate of $87
600 per year - because all the cost for a year has been "front loaded" into these
months.
What if the hotel gave you the chance to set a limit on the daily rate you would be
charged for the room service by filling in some forms? It would not change your cost per
year, but would help cashflow, and limit the cost if you did not stay for a full year.
This is like the choice older Australians have with the means tested care fees for
residential aged care.

The way it used to be

Under the old system of aged care means
testing, the part of aged care costs that

was based on the resident's ability to pay

had a daily maximum - and this was about
$74. If the resident didnt want to be
assessed for fee support (normally under
the assumption support was unlikely), they
It was a good life (slightly better).

could choose not to apply and then be

liable for the daily maximum of $74. This
was as bad as it would get.

Then of course all the other components had to be considered - like the basic daily fee,
accommodation costs, extra services fees and optional extras, as well as pharmacy
costs, change in pension eligibility and the rules around the home (lets not forget all the
other complex parts of this story!).
Under the new system, as implemented July 1 2014, things work a bit differently.
This new system is remarkably effective in getting older Australians to pay more for their
cost of care.
In this article we look at how the means tested care fee is applied. Its very interesting.

The old cap trick

The means tested care fee allows the government to assess how much you should
contribute to the cost of care.
Older Australians in residential aged care can expect 3 things from this fee:
1. There is an annual limit of what the resident will pay - up to $25k per year.
2. There is a lifetime limit of what the resident will pay - a maximum of $60k.
3. The resident is liable for the cost of care as assessed in the Schedule of Fees and
Charges for Residential Aged Care, up to a daily limit as calculated by aged care
means testing.
Now the calculation that the government
does (based on the information the
resident provides in the Combined Assets

and Income Assessment ), determines

this daily limit.
(Contact us for more detail on how the
Don't worry about paperwork, trust us.

government makes this assessment.)

Let's take an example of someone

considering the calculation of the means tested care fee.

If the means tested care fee cap is $25 000 per year, then this works out to be about
$68.50 per day. If a single person had no other assets but $1.150m in cash, they would be
right on the the cap of $68.50 per day (or $25 000 per year). So if someone had $1.2m in
assessable cash assets, should they bother with the government testing, given the annual
result is still going to be $25 000 per year?
Here is where it gets interesting.
If a resident doesnt want to bother filling out the forms, they are still protected by an
annual (and lifetime) limit. That means that they wont pay more than $25 000 per year in
means tested care fees.
However, they basically leave the daily limit up to the government.
What is the daily limit? Well it is the extent of the payments the government pays the
aged care provider, and it can be substantial.
How high can this go? Let's find out.

Front Loading
Consider the situation where the resident has high level requirements for care. In these
cases, the government's payment to the aged care facility for providing the care could be
$208 per day, and even higher when taking into account other supplements, as outlined
in Aged Care Subsidies and Supplements. (The Residential Care Fee Estimator maxes out
at $240 per day).

What is the outcome? Well at a rate of $208 per day, the $25 000 cap would be reached
in 4 months.
Now, if properly assessed by the
government, a resident would need to
have financial assets of $2.5m to be paying
for the cost of care at this rate. (Try
punching in $2.5m in financial assets in the
Residential Care Fee Estimator).
If the resident stays at this level of care for
How would you like to pay?

a whole year, then the cap is reached early

in the year, and for 2/3 of the year the

resident would not be paying any means tested care fee.

Meanwhile, cash-flow has been high for one part of the year, then drops off.
However, If the resident had financial assets less than $2.5m, the government would
assess they should not have to contribute the full $208 in care fees per day. This could
make the overall cost of care be more evenly spread over the whole year. The resident
with $1.2m in cash would be limited to paying $74 per day.
This story gets more important when the resident is not in care for a full year.
What if this resident is only in care for 4 month of the that year? Without the daily limit,
they would pay $25 000 in this short period. The resident who went through the
assessment and had a daily cap of $74, will only pay $8 880.

If a resident is requiring very high levels of care, and only for a part of the year, they may
pay high levels of care fee without the benefit of a daily limit . If government means
testing means these daily costs could have been reduced, the resident should make the
most of this opportunity.

What does all this mean?

Think carefully about assuming the

resident is too wealthy to benefit from
government support. Even at high asset
levels, there may still be the opportunity
to limit the daily amount of the means
tested care fee.

Make sure you get the Goodies

This daily limit will at least help smooth

cash flows, and more importantly will limit costs when the resident is not in care for a
whole year.
Persevering through the 32 page Combined Income and Assets Assessment may be
worth the effort.
Here is a tip: If the aged care fee estimator produces a means tested care fee of
more than $68.50 per day, then filling in the paperwork will help smooth resident
payments, and allow some limit on payments if the resident is in care for less than
a whole year. (T his year does not have to be the first year either)

We can help.

Post a comment / /

T he top 5 mistakes made when going into residential aged care

1. Selling the house without understanding the consequences.
The rules around the principal residence
are probably the most important when
considering the costs of residential aged
care.
First of all, the house could be largely
exempt from the aged care means tests
for 2 years (and even longer if you set
things up right). Better still, if you rent the house out, this income is exempt from testing
in the same way.
Of course you may need to sell the house to fund accommodation and care costs..but
do you really have to?
2. Not understanding how accommodation costs work
All residents have a choice in how they
pay for accommodation - either by lump
sum or cashflow, and there may be
government support for those eligible.
Accommodation costs paid by a lump
sum Refundable Accommodation Deposit
are guaranteed to be returned by the
Government, and are exempt from Centrelink tests. The Centrelink exemption is a big
opportunity.
Are you making the most of this?
3. Getting confused between all the terms.
The terms around residential aged care are

complex. Try setting everything up on the

same basis, like weekly or yearly, to match
up with income like the aged pension or
other investment income - don't let this
one get you down.

4. Being a landlord is easy on paper

After looking at all the options available to
the resident, renting out the principal
residence may make beautiful sense.
However, what happens if tenants don't
appear (or don't pay)? How long will your
reserves last? The ability to retain the
home may be based on a scenario that has a pretty skinny margin for error.
Having said this, understanding how things could work if you are a landlord may give you
a bit of breathing space when considering selling the property. Being able to run the right
campaign or hold out for a better price for the house is going to be easier when you
understand exactly what your options are.
5. Not solving for cashflow.
Have you understood all the costs before
signing on the dotted line? The daily costs
of care can be significant. You would want
to be comfortable that you have a bit in
reserve. Cashflow is the big story when
planning aged care costs, and it could be
difficult to plan jut how long mum or dad's
care situation may need to be funded.
Make sure the whole setup is viable.

Insights RSS

Post a comment / /

Later Life Advice on Radio National

Later Life Advice was part of a panel discussing the aged care system on Radio National.
Also on the panel was Cynthia Payne, CEO of SummitCare, and Charles Wurf, CEO of
Leading Aged Services Australian NSW-ACT.
Click on the link to hear more!

Post a comment / /

T he new Residential Care Fee Estimator? Not up to the job.

An aged care fee tool has been added to the My Aged Care website. The Residential Care
Fee Estimator is designed to help people "estimate the fees and charges you may be
asked to pay while living in an aged care home."
This tool gives an estimate of the means tested care fee, and any accommodation cost
support.
The reality is that decisions around paying for residential aged care cannot be solved as
simply as this.
The best outcome is a balance between maximising government support, and ensuring
financial viability. This means considering a whole bunch of alternatives - and many
calculations.
Consider these examples - does the Residential Care Fee Estimator help?

Sell the house to pay for care. Then the cost of care goes up. What?
So you get an estimate of the fees using the Residential Care Fee Estimator. Then, you
decide it makes sense to sell the home to pay for the fees. Make sure you know what you
are doing - as you may have just increased the cost of care. How does this work?
It works like this: The proceeds from the
sale of the home are now taken into
account when determining the means
tested care fee and any accommodation

support.
Previously most or all of the value of the
I was getting the money together to pay..then I had to
pay more? What just happened?

home may not have been included in the

assessment.
The level of support from the government

goes down, and the out of pocket cost of care goes up.
There may be other options here. Make sure you know what they are.

Paying by Daily Accommodation Payment is more like paying by an

expensive interest rate - and you may lose the ability to get more
Aged Pension
The Residential Care Fee Estimator has little to say about Accommodation Payments.
The reason for this may be that their are so many alternatives in how accommodation
payments can be made.
Your provider will offer a choice between a Daily Accommodation Payment (DAP) and a
Refundable Accommodation Deposit (RAD).
Before you make a decision, try this shortcut.
Multiply the Daily Accommodation
Payment by 365 and you will understand
that a Daily Accommodation Payment
(DAP) is like an interest payment on the
Refundable Accommodation Deposit
(RAD) amount.
This rate is currently set at 6.69%. This
rate is set by the government.
Does it make sense to pay the RAD as if it
were a loan, when you have the funds in
The estimator didn't tell me this!?

The estimator didn't tell me this!?

the bank earning low interest rates? Maybe

it does - but can you be sure you will have
enough money available to meet other care costs?

This decision will be easier to make if you have a clear understanding of the overall cost of
care.
And another thing - funds paid as a Refundable Accommodation Deposit (RAD) are not
included in assessment for the Centrelink Aged Pension. This means that payment of a
RAD may not only be saving on interest costs, but may also result in an uplift in payment
of the Centrelink Aged Pension. Are you able to take advantage of this?
The Residential Care Fee Estimator does not have anything to say about this important
choice. Make sure you are getting the whole story.

Making the most of government support will not ensure financial

viability. It may not be enough.
As you can see, making the most of
entitlements, and having appropriate
reserves to fund care can be two
competing objectives.
By keeping funds aside to pay for
(expected) aged care costs, the resident
will likely be in a position of getting less
To maximise government support, there is the risk that

government support.

the money will run out to pay for care. Then what?!

How do you make the best decision?

The right answer is not found via an estimator. It is found by

exploring alternatives and recalculating outcomes until a balance is
struck.

What is the right balance for you?

You won't find it unless you have a
thorough understanding of your options
around paying for care.
The Aged Care Fee Estimator is not up to
the job.
I think I have solved it. Wish it was easier!

Later Life Advice can help.

Finally - watch for means tested care fee estimates greater than
$68.50 p.d.
These are the limits of the means tested care fee:
1. The amount of supplement the government pays for care
2. A maximum of $25 000 per year (up to about $68.50 per day)
3. A lifetime cap of $60 000.
Meanwhile, the estimator calculates a means tested care fee that has NO maximum.
However, the means tested care fee
DOES have an annual maximum.
What does this mean?
It means that in some cases the daily
means tested care fee may be charged at
a rate that is much higher than the average
of the maximum rate.
This is a real challenge for cashflow, and
very confusing for the resident and their
family.

Watch our video talking about the

Residential Care Fee Estimator.

Later Life Advice can help.

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Moving to Residential Aged Care? Watch for the conflicts of

interest.
There may be a number of situations in the transition to residential aged care that can
present a conflict of interest with the people you are dealing with. To be confident in
getting the right outcome it is worth knowing how these conflicts could present
themselves.

Should you keep your funds in an investment portfolio or hand over

your money to the aged care provider?
Most financial advisors need assets
invested to get paid (although not all).
Selling assets to raise funds for the
payment of a RAD (Refundable
Accommodation Payment), may not be
that good for the financial adviser, as

assets that they may have been charging

fees to manage for some years will now
be in the hands of an aged care provider.
By using investment assets to pay a RAD,
Best choice for you? Or your financial advisor?

the resident may get a higher Aged

Pension as funds used to pay a RAD are
exempt from Centrelink testing.

The alternative to paying a RAD is a DAP(Daily Accommodation Payment ). This is like an

interest payment, and is at a rate set by the government - currently 6.69%.
The reasons not to use financial assets to pay a RAD will most likely be based upon
keeping assets liquid to fund care costs. Make sure financial assets that are kept in the
hands of the financial advisor are there for the right reason - it may be costing you interest
and potentially a higher Aged Pension payment.

Reverse mortgage - a drip may be better than a waterfall

Much is written about reverse mortgages
(see ASICs Moneysmart website). In aged
care planning, a reverse mortgage can
work very well in some situations however they are quite specific. Make sure
you see and understand the numbers and
the reasons.
Lenders may want to offer you a higher
loan. The bigger the loan, the bigger the
fee potential. However for reverse
mortgages the best outcomes are often
where the loan is drip fed to satisfy
expenses as opposed to being drawn
down in a lump sum.
For example, using financial assets to pay
a RAD will reduce financial asset levels and

Think about drip feeding your loan.

therefore potentially increase the Centrelink Aged Pension. Meanwhile, a house and the
rent received can be excluded from Centrelink tests. A reverse mortgage could help to
satisfy care costs as they fall due, while allowing the resident to keep their house and rent
it out. This may work well for the resident - but you will want to understand the numbers.

What is best for the resident vs the aged care provider

The investment community is very
interested in aged care right now.
Recently listed aged care provider Japara
had a strong share market debut. A big part
of the story of this success is based on the
potential for the provider to collect a lot
more in RADs.
The story goes something like this: the
government changes mean Aged Care
providers can now collect a lot more
money from residents as a Refundable
Right for you or the share price?

Accommodation Payment (RAD). For the

Aged Care provider, a RAD is a chunk of

money that allows them to reduce debt. The provider is effectively borrowing from
resident and paying no interest. This is a great outcome for the facility if they may have
previously had costly loans with the banks. They can now borrow from the resident for
free. This saves them a lot of money.
Alternatively, some providers may not have the need for RADs - in fact the payment of a
RAD may not be that much use to them if they will just put the money on deposit at a
bank for measly rates. These aged care providers may have no debt at all. If the resident
decides to pay the accommodation costs as a Daily Accommodation Payment (DAP),
they will be paying at an interest rate set by the government - currently 6.69%. These
providers will not get 6.69% by placing these funds in the bank. These providers may
prefer the resident to be paying them 6.69% instead!
This may result in the resident being told of a preference for a RAD or DAP. The fact is
that the resident has the choice. Some providers will try to make an offer that sees both

the resident and the provider get what they want. Alternatively, the provider may show
preference for a resident who is likely to pay in a way that works best for them. How do
they tell? Frankly, this balance is yet to establish itself. The aged care providers, and their
investors, are watching closely.

It may be time to manage capital gains

When mum or dad go into care a lot of
things change. One thing that could
change is the overall income position.
With the investment pool potentially
diminished as a RAD is paid, taxable
income may be low. Further, aged care
costs are partially deductible via the net
medical expenses offset (which was
dismantled for all except aged care

Think about what is going to happen with the assets

expenses until July 2019). This can

potentially make for a good opportunity to realise capital gains, as taxable income is low.
Why do this? Consideration of intergenerational wealth issues should come into play
here. If assets are to be passed onto the next generation and then simply sold down to
pay down mortgages or for other uses, it may make more sense to sell the assets now,
while the resident has a low tax rate. And - there is also the case for reducing risk to
manage aged care costs as a risky investment portfolio may not be the right way to keep
assets in reserve to fund aged care costs.
This issues is relevant when considering the reasons for keeping an investment portfolio
rolling on when mum or dad is in care. Does it still make sense?

Annuities, bonds & trusts - complexity can be expensive.

Make no mistake, there can be a good
case for a range of structures at this stage.
Having said this - if the benefit is skinny look closely at all the fees, margins and
commissions before you make judgement
on whose interests are served.

There is a good case for expecting average

How will you untangle this?

amount of time in residential aged care to

reduce over time as governments make it

easier for Australians to stay at home longer, and the cost of residential aged care rises.
Make a trade off around the complexity for the time these more complex structures are
around for. They may be expensive and difficult to set up as well as dismantle, and only
for marginal benefit.

Your timing vs the timing of your advisor

Many advisers work in different ways. In
many cases, a financial adviser will be able
to help people in a broad variety of
financial situations because they have a
centralised group that do the heavy lifting
when it comes to detailed financial
planning - generally called a paraplanning
team. This means the financial adviser
doesn't need to be an expert.
Get the right advice, on time.

The way this works is that the advisor asks

a a whole bunch of questions, then sends the information off, to come back a while later
with all the answers - solved by the experts somewhere else.
This does not work that well for families coming to terms with aged care costs, because
things happen fast, and things change a lot. Families are looking at facilities, finding more
information, getting feedback on affordability and all the way, modifying plans. By the
time your advisor comes back in 2-4 weeks with a plan, things may have changed a lot.
Make sure your advisor has the expertise to fit in with this fluid situation. The way they do
things may suit them. Does it suit you?

We can help

Getting ready for aged care can be

complex and stressful.

O
U

N
S

A C

Get specialist help

Feel free to contact us any time so we can get you make the right decision.

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Aged Care: T he Government wants to pay less. Who pays more?

Aged Care is just one part of significant government spending on older Australians.
Government spending in health, aged pension and aged care increases dramatically as
Australians pass age 65.

Source: Australian Government Productivity Commission 2013

And it is not just for the few. About 3 million Australians are over 65 and 2.25m of them
receive a full or part pension. This means that more than 70% of Australians over 65 get
an income from the government.
Put another way, 10% of Australians get an aged pension from the government.
But there is more to it than this.
In being eligible for a Centrelink Aged Pension, older Australians are also eligible for a
preferential Medicare support, and full access to the Pharmaceutical Benefits Scheme
(PBS).
This is a big story.
Australians older than 75, account for 4 times as much Pharmaceutical Benefit Scheme
support as the population average, and nearly 3 times as much Medicare support.

Another big story is that government currently pays about 70% of residential aged care
costs. In 2012, the average amount the government paid per bed was $51 400.
So how easy is it to get the money?

Lots of paperwork, complex eligibility, changing rules.

Centrelink, Medicare, Pharmaceutical Benefits Scheme - in getting this support from the
government, older Australians have to deal with multiple arms of the government.
Each arm of the government comes with a complex and extensive system of eligibility
tests to deal with. And the rules always seem to be changing.
When going into residential aged care, there is also the difficulty of choosing the right
provider. With different types of care and cost, this creates more confusion at a difficult
time.
Then there is policy change. This is the big sweeping stuff, not the tweaking.
In July 2014, the Government changed the way it looks at how older Australians can
afford to pay for care.
Simply put, the government wants to pay less for residential aged care. Of course the
costs of providing care are not going down, so the money has to come from
somewhere.

Who pays more?

Well, those that can afford to.
If this is not the answer you were looking for, then you are not used to the challenges of
working out just how much aged care will cost.
Confused or not, many older Australians are going to have to contribute more to the
cost of aged care support from July 1 this year.

Later Life Advice and Living Longer, Living Better

Later Life advice has performed extensive analysis on the changes.

This analysis is from one perspective, and will remain from one perspective only - the
consumer.
Please sign up on our website to be kept informed as Later Life Advice outlines key
components of the new system over the coming weeks.
If going into residential aged care is on your radar this year, this is a story you will want to
be following.
For most people, the move residential aged care is not a decision, it's a necessity, and
decisions need to be made fast.

Later Life Advice - right now

Later Life Advice helps you understand aged care costs, and we can do it very quickly.
Let us help you make better decisions around the costs of residential aged care.
Please stay in touch by signing up for updates, and please let us know if we can help.
Brendan
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Later Life Advice on Sundays with James O'Loghlin

I recently had the pleasure of talking with James O'Loghlin on ABC radio.

Untitled
Post a comment / /

Get the full story on reverse mortgages.

A reverse mortgage allows you to borrow money using the equity in your home as
security. Home owners can normally defer repayment of the loan (and interest), until
they die, move or sell the home.
Over recent months there has been more noise about reverse mortgages. The reasons?

Banks appear more willing to

lend money
Banks appear more willing to lend money
in this way. With the onset of the GFC,
Australian Banks (and overseas banks
conducting business in Australia) pretty
much shut down their reverse mortgage
businesses. More recently, bank
willingness to lend money as a reverse
mortgage is on the rise. A good part of this
is because:

Property prices have been going

up
Property prices have been going up.
Residential property is attractive for banks
to lend against. For Australians, increasing
property value means increasing wealth.
How else do you tap newfound property
wealth?

The government has been

jawboning about reducing the
aged pension
Meanwhile: The government has been
jawboning about reducing the aged
pension. One way of reducing the amount
of aged pension paid out to older
Australians is to increase the pool of assets
the government uses to assess how much
pension support someone should have. An
idea to include the value of people's
houses in the assessment is a great way to pay out less. Many older Australians are
considering their options should this happen.

Aged care is getting more

expensive from July 1

Last but not least, Aged care is getting
more expensive from July 1. Older
Australians need to consider all options
available to them in paying for care. In
some scenarios, the use of a reverse
mortgage drawdown to cover aged care
costs could also improve aged pension
income.

The use of a reverse mortgage has many

implications. ASIC's MoneySmart
website has some great coverage - but it
is by no means complete.
A reverse mortgage is not just a story
about compound interest. It is also a
Centrelink and Aged Care means testing
story.
Later Life Advice does not have a credit
license and does not offer reverse
mortgages.
However, Later Life Advice will calculate for you the implications of a reverse mortgage
strategy on Centrelink and Aged Care outcomes. We can do this by taking into account
any drawdowns and how they interact with Centrelink means testing.
In terms of aged care planning, a reverse mortgage may offer a useful way to satisfy
cashflows, while at the same time, helping older Australians make the most of their
entitlements. This won't be the case for all.
Make sure you have the whole story.

We can help
Getting ready for aged care can be
complex and stressfull.
This is where we can help.
Freel free to contact us any time so we
can get you started with getting the most
for your aged care preparations.

E
T

T
O

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