Q. My elderly parents are planning on selling the family home and moving into an Aged Care facility.  Both parents have been assessed as requiring ACAT low level care.  There is a considerable bond to be paid and an array of ongoing care charges.  We are unsure of the impact of this decision on their existing Age pension.  Can you please explain the issues we face in making this challenging decision.

 A.  At the same time as facing the challenges of planning their own retirement, many Baby Boomers are facing the vexing question of providing for the care needs of their ageing parents.  Having the challenging conversation with ageing parents is fraught but necessary. Financially the earlier these transitions are discussed and agreed to, the greater the flexibility of options available to maximise their benefits and reduce costs.

Aged Care planning as a consequence of a medical emergency often leads to angry or upset elderly parents and the family conflicted and dealing with guilt.  You have managed to get your parents to recognize their circumstances and take action which is a great start.  Knowing that your parents twilight years will be spent in comfort with dignity will be a great relief to them and also the family.

The Accommodation bond is a lump sum paid to the Aged Care 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.  As a couple, they will usually pay a bond each, even if they share a suite.  On death the Accommodation bond is refunded within 14 days and guaranteed by the government.  You are not required to “sell” your parents suite, it is resumed by the facility. Facilities are entitled to keep a prescribed retention payment of $323 per month per resident up to a maximum of $19,380 each over 5 years.

Your parents must be left with investment assets of at least $41,500 each after paying the bond.  If you are unable to fund the full bond, the facility can charge interest on the outstanding bond at a maximum of 7.62% p.a.  Again the size of the outstanding bond is negotiable between you and the facility and is at their discretion.

Your parents will pay a daily care fee.  The maximum daily care fee is $43.22 per day and will be slightly less if they are not on the full pension or are self funded with income greater than $386 per fortnight each.

Your parents may be asked to pay an income tested fee in addition to their daily care fee.  The Department of Health and Ageing determine the fees on a quarterly basis.  Assessable income for Centrelink purposes and the Age Pension are taken into consideration. The maximum fee is $68.65 per day per person.  Financial planning strategies can reduce this cost.

Some facilities will charge an extra service fee for additional high dependency care or for extras.  This is negotiable with the facility.

As your parents have been assessed as requiring low level care, make sure the facility can accommodate a transition to High level care if and when required.  For example, if one parent deteriorates and is required to move to high level care, will the spouse be able to stay in their unit and is the spouse easily accessible?

You can often “try before you buy”, consider respite care at the facility to make sure your parents are comfortable and happy.  This can be negotiated for a set time at a set cost.

Even if your parents are living to together at the Aged Car facility, they will be treated as being separated by illness for Centrelink purposes which mean their Age Pension may increase.  Also fees qualify for the Medical expenses offset.

Aged Care planning is a specialist area of advice.  There are various strategies available to reduce the daily care, the income tested fees and reduce the impact of the Assets test on the sale of the home.  You need to speak with a Financial Adviser who has expertise in this area.

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