The Australian aged-care sector is a maze of jargon and acronyms. Decisions involving tens of thousands of dollars must often be made in a short time frame. This puts massive pressure on children with ageing parents.
The result is that most Australians pay thousands of dollars too much for residential aged care. Worse still, some are paying hundreds of thousands of dollars too much. In fact, this is often the case if they rushed into signing a contract without looking at the options available.
Sometimes it is better to keep the family home
Here are five ways to dramatically reduce the cost of residential aged care. In fact, you may save hundreds of thousands of dollars.
Negotiate on the Refundable Accommodation Deposit (RAD)
The RAD (formerly known as the bond) to secure a room at an aged-care facility can be as high as $2 million. In many cases these RADs are negotiable. Better still, at times they can be as much as halved. The willingness of an aged-care facility to negotiate on RADs depends very much on the demand and supply of rooms at their facility. It is possible to negotiate to pay some or all of the daily fees from the RAD to minimise the impact on a person’s cashflow. This means of course that less of the RAD will be returned at the end of the care period.
Look at potentially part-paying the RAD
Aged-care facilities prefer people to pay a RAD in full at the time of entry into aged-care. However, it is possible to choose to pay interest payments only. Also, you can negotiate to pay with a combination of lump sum and interest payments. This frees up capital for other expenses.
A family can also negotiate to have some of the monthly fees taken out of their RAD. This will obviously affect the amount that is ultimately returned to the estate. However, it eases monthly cashflow requirements now.
Structure finances so that a parent can keep the full pension
The full pension is currently $894.40 per fortnight (or $23,254.40 per annum). Sadly, it can be lost if the family home is sold. That’s because the cash from the sale is added to the person’s assessable assets. Sometimes it is better to keep the family home. Then, you might be able to pay aged-care fees from the rental income generated.
Lower the daily means-tested fee
The means-tested fee is based upon the income and assets of the aged-care resident. Therefore, it increases as the resident’s assessable assets and income increase. For example, a resident on a part age pension with assets totalling $200,000 and deemed to be earning $28,312 per year will pay $1.97 per day ($719 per year). However, a resident with assets totalling $1.2 million and deemed to be earning $38,247 per year will pay $67.02 per day ($24,464 per year).
Look closely at the extra-services fee
One option to reduce the means-tested fee is to buy an aged-care annuity, if appropriate. An aged-care annuity is a financial product that applies in a situation where a home is sold, resulting in excess cash after the RAD is paid. This excess cash could affect pension eligibility. The annuity converts the assessable income to non-assessable income, so a pension is not affected.
Other options to lower the daily means-tested fee include making gifts to children ($10,000 per year allowable, maximum $30,000 over rolling five-year period) or prepaying a funeral ($12,500 maximum).
Look closely at the extra-services fee
Premium extra-services fee packages can cost as much as $120/day. They provide for additional services like a choice of meals, alcohol at meals, expanded activities program, cable television etc. Look closely at the extra-services fee and ask what services are being delivered. You’ll need to assess whether they represent value for money.
The earlier that advice is sought, the better the outcomes that can be achieved. Once a contract has been signed the leverage for negotiation has gone, but there are still some expenses that can be reduced i.e. the government means-tested fee.
If a parent is in his/her 80s, it is worth considering an Aged Care Assessment Service (ACAS) assessment, which determines the level of aged care that a person will require. This is the first vital step to enter aged care.
Aged Care Weekly can connect you with reputable aged care service providers. Call (03) 9043- 1717, email firstname.lastname@example.org or complete this contact form: