It’s true, everyone’s needs are unique. But there are some common guiding steps to take you through the financial considerations of moving into an Aged Care Home.
Tim Henry from Aspire Planning – a specialist Aged Care financial planner – talks us through the decision-making process.
Providing specialist financial Aged Care advice to many clients has shown us that all our clients are unique, their specific circumstances are different and as such, the advice needs to be tailored to their needs.
Many clients or their families come to us feeling deflated, they feel like they are out of their depth with the Aged Care process and are often stressed about the decisions they need to make. However, there are some steps to guide you through the process.
While dealing with the emotional side of a move into Aged Care, the family will also be expected to make fairly swift decisions that have serious financial and welfare outcomes for their loved one.
When faced with an overwhelming amount of change and information, it can be beneficial to break down the decision making into smaller chunks.
There are 3 clear steps in this decision-making process:
- Strategies to improve wealth
Step 1 – Accommodation
Finding the right facility is vital and then the next step involves paying for the accommodation. Like any accommodation, one can choose to “buy” or “rent”.
Clients moving into residential care will be asked to pay the published rate for their room.
This can be paid in three ways:
- as a lump sum to “buy” the right to the room.
- as a daily payment to “rent” the room.
- a mixture of both “buy” and “rent”.
What level of assets does our client have?
The main consideration here is how accommodation will be funded. We provide advice to our client to show how their current assets can be utilised to fund entry into residential care.
In many cases, our client may have a home that can either be sold to fund the lump sum or rented out to fund the daily payment.
Step 2 – Cashflow
Think of this step as the ongoing budget. There are ongoing costs of residential care and these need to be met by the assets or income of the entrant.
There are 3 types of ongoing costs in residential care:
- Basic Daily Care fees
This is a set fee for all residents – currently $50.16 per day.
- Additional Care Fees
This is an additional daily fee, but it is based on the assets and income of the entrant, hence this fee varies and not all entrants pay this fee.
- Extra Services
This is a discretionary fee that some facilities offer for extra services, such as Foxtel, a glass of wine with meals etc.
How will the ongoing costs be funded?
The main consideration here to assess our client’s cash flow position. They may have income such as the Age Pension or Superannuation income to assist with the payment of their ongoing fees.
If there is a cash flow deficit (costs exceed income), we need to assess the size of the deficit, what other assets can be used to fund the shortfall and for how many years this is viable.
Step 3 – Strategies to improve wealth
Think of this step as “fine tuning” to improve the asset and income position of our client. This is where we can use our knowledge of the rules to improve their overall situation.
In most cases, this fine-tuning will be made to either assist with lower ongoing Aged Care fees or to increase Centrelink entitlements (Age Pension).
Clients who own a home may need to use that home to help cover expenses (unless a spouse is continuing to live there).
The options to decide upon are:
- Sell the home
- Rent the home
- Retain but no rental income.
Depending on the circumstances of the client, either one of these options may be the best one. The optimal decision could potentially lower aged care fees and maximise the Age Pension.
If there are surplus investable funds (after paying for accommodation and leaving a cash reserve) we would look at other strategies to improve our client’s financial situation or estate planning outcomes.
In a nutshell
While the journey into Aged Care can be daunting, we have seen firsthand that when our clients are empowered and are supported through the process, appropriate financial decisions are made and the probability of a better outcome for their loved one is far greater.