Aged CareQ.  My father recently passed away at 86, my mother is 84 and whilst relatively fit and well, she realises she needs to make the move to an Aged Care facility.  As a consequence, we have recently sold the family home.  We are in the process of assessing an array of accommodation options whilst mum stays with us. The costs of various facilities varies markedly, our preferred option has a bond of $400,000, and care fees of around $24,000 a year. I have been alerted to changes to assessment criteria of fees for admission to an Aged Care Facility that take effect on 1 July.  Are we better off waiting until after 1 July or make the move now?  Mum was previously on the full Aged Pension of approx. $22,000 p.a.  She has $680,000 from the sale of the Family home and $30,000 in the bank.

A.  Making the decision to move into Aged Care is often difficult and stressful.  The loss of a loved one, the decision to sell the family home and the move for an elderly parent can put a terrible load on the family.  To compound your problems, there are major reforms to the way in which the Aged Care System operates that commence 1 July that will have significant financial consequences for your mother.

Under the current rules, Aged Care residents pay an Accommodation bonds as a lump sum paid to the facility on admission.   Accommodation bonds are Assets test exempt for Social Security purposes. The cost of the bond will vary from facility to facility and usually can be negotiated depending upon the availability of suites.  On death the Accommodation bond is refunded within 14 days and guaranteed by the government.  Facilities are entitled to keep a prescribed retention payment of $331 per month per resident up to a maximum of $19,860 over 5 years.

As you have sold the family home, the net proceeds after paying the Accommodation bond will be assessed by Centrelink for Assets Test purposes. So your mothers entitlements to the Age Pension will most likely reduce.

Your mother will pay a daily care fee.  The maximum daily care fee is $46.50 per day. She will also be asked to pay an income tested fee in addition to the daily care fee.  This is calculated at 41.67% of her total assessable income above $951.20 per fortnight.  The Department of Health and Ageing determine the fees on a quarterly basis.  The maximum fee is $73.86 per day.  A facility can charge additional amounts for extra services provided by negotiation with the resident.

The major changes that occur from 1 July relate to the treatment of the Accommodation Bond and the income tested fees.  For new residents from 1 July the Accommodation Bond will be replaced by Accommodation Payments.  Residents will have the choice to pay a lump sum Refundable Accommodation Deposit (RAD), a periodic payments known as a Daily Accommodation Payment (DAP) or a combination of both. Aged Care facilities will no longer be entitled to a retention payment on leaving the facility.

The incomes tested fee will be replaced by a means tested fee.  The key difference being that your mother’s assets as well as her income will now be taken into consideration in determining her daily care costs.  The fee is calculated on 50% of her income above $22,701, plus 17.5% of the value of assets between $40,500 and $144,500, plus 1 % of the value of assets from $144,500 to $353,500, plus 2% of the value of assets beyond this. Importantly the value of the RAD is also included. The fee is capped at $25,000 annually or $60,000 over the residents lifetime.

In your mums case, depending on how the net proceeds of the property sale are invested, her fees could rise by approximately $9000 by waiting until 1 July.

There are various strategies available to reduce the Aged Care facility fees and the impact of the Assets test on her Aged Pension entitlements from the sale of the home.

If you are in a position to make a decision now, you should seriously consider acting before 1 July before the new laws take effect.  The Aged Care facility should provide you with a comparison of costs for pre and post 1 July admission.  But please seek advice from a Financial Planner who has experience in dealing with Aged Care planning to optimise the outcome for your mother.


Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.