Be prepared...Gregor Whiley says a family's situation can change very quickly.
Photo: Steven Siewert
Navigating the minefield of putting family members into aged care is tricky. Lesley Parker decodes the loopholes that could save you money and heartache.
Arranging aged care for an elderly parent who isn't coping at home can be an emotionally draining experience - and that's before the added stress of navigating the unfamiliar and complex territory of Australia's welfare system to make sure you're doing the right thing by them financially.
Adult children find themselves in the reverse role of carer and decision maker at this time, facing choices such as whether or not to sell the family house to meet the costs of residential care - something that isn't as straightforward a decision as it seems.
The numbers can be daunting - aged-care accommodation bonds averaged $213,000 nationally in 2009 but are commonly between $350,000 and $450,000 for facilities in the big cities.
At the top end, they nudge $1 million for a resort-style room in a prestige Sydney location.
But, again, nothing is as it seems and there are reasons some people may prefer to pay a high bond.
"These are very significant financial decisions," says Brendan Burwood, the managing director of ipac financial care, a new division of the financial-planning firm. "In fact, it's possibly the second-biggest financial decision mum will ever make."
And they're decisions many people end up making in a hurry.
"Things happen so quickly," says the co-founder of Strategy Steps, Louise Biti, who works with financial planners on aged-care strategies.
"'Mum's had a fall and we have to get her into the right place.' People focus on that without realising there's a wide range of [financial] opportunities and implications."
All this means adult children should have that potentially awkward but altogether necessary conversation with their ageing parents - and with family advisers.
TYPES OF CARE
To understand the funding of aged care - and possible financial strategies - you need to understand the different types of care.
The executive manager of aged-care solutions for Colonial First State, Rachel Lane, describes the complexity.
"There are three different types of aged-care facility and it's possible for these three different types of care to exist under one roof," she says. "Within two of these types of care there are three different types of residents."
The rules and strategies differ depending where mum or dad falls on that matrix (so, naturally, we can provide only some broad outlines here).
Most elderly people requiring support receive "community" care - services in their own home via the Home and Community Care (HACC) packages and, to a lesser extent, from the Community Aged Care Package (CACP) and Extended Aged Care at Home (EACH) program.
Those seeking "residential" aged care in a facility will encounter three categories: low care, high care and extra services. Low-care accommodation comes with "personal care" services, such as help with bathing and eating.
High care adds nursing services into the mix for those with greater needs. That's not to be confused with extra services, which refers to a higher standard of accommodation, food and other hotel-type services.
"People think it's simply a matter of putting your name down at an aged-care facility but it's not at all like that," says the family services manager of Expect A Star, Lisa Phelan.
Expect A Star assists companies to help its staff who have elderly parents deal with the government-subsidised aged-care system.
FINDING A PLACE
In fact, a facility won't want your name until you come armed with an ACAT form - the report from an Aged Care Assessment Team that is the key to unlocking the aged-care system.
The government assessment of your parent's needs will determine which type of care or facility is appropriate.
Without an ACAT form, your parent won't attract a government subsidy - in 2009, an average of $48,550 for a high-care resident and $17,750 for a low-care resident.
The founder and director of home-based care provider Just Better Care, Trish Noakes, warns there can be a six- to nine-month queue for an ACAT assessment in places such as metropolitan Sydney.
"It can be faster if someone's waiting to be discharged from hospital and they may need to go into residential care but a person at home could have high needs and not be managing and that doesn't fast-track them," Noakes says.
Ask your GP to help.
Once the assessment is made, your parent may have another queue to join to actually receive the home-based services, while residential care facilities are running at high occupancy. So start investigating your options early.
An ACAT assessment is free and valid for 12 months.
THE COSTS
Now you have an ACAT form that says mum or dad is eligible for a particular type of residential care, you can start thinking about the costs. (Please note the figures used are for the past year. The annual adjustment of government-regulated rates was due at the time of writing.)
Biti says the upfront entry cost - if any - depends on three things: the type of care, how much you have in "assessable" assets (and we'll look at whether the house counts) and the facility's commercial considerations.
A facility can charge an upfront bond for low-care or extra-services accommodation but not for standard high care, where an annual accommodation charge applies.
Let's look at standard high care first. Currently, the maximum permitted accommodation charge is $9811.20 a year. This is payable every year your parent is a resident (paid monthly).
The actual amount is based on your parent's assets. If they have less than $37,500 in assets they don't have to pay an accommodation charge.
Between there and assets of $93,410.40 they'll pay a pro rata amount. If their assets are more than $93,410.40, they'll pay the maximum.
The amount is fixed when your parent enters the facility and won't rise. Subsequent increases won't apply to them, only to new residents.
In high-care extra services and low care, the upfront accommodation bond is regulated to some extent but isn't a set amount.
"Each facility will have a different rate or range of rates," Biti says. "They might charge different bonds for different rooms - some rooms might be nicer or newer than others.
"They're also starting to charge based on the capacity of the person to pay. What we're finding sometimes is that while they might usually want a bond of around $350,000, if they think someone's got the capacity to pay a higher amount, they might charge them more."
That's not necessarily a bad thing, she says. "People may want to pay a higher bond because they get better social security benefits as a result." (We'll explain this shortly.)
Again, the facility has to leave you with at least $37,500 in assets after the bond. So, if you have less than $37,500 you won't have to lodge one. If you have $50,000 in assets, the bond can't be any more than $12,500.
And if you have $1,037,500 in assets, theoretically they could ask you to pay a $1 million bond, though this is rare, Biti says.
Before you have a heart attack, remember the bond is government-guaranteed and refundable, less a retention amount taken out monthly for the first five years only.
The retention amount is currently $307.50 a month, or $18,450 in total before it cuts out at five years. Again, this is fixed on the date of entry.
Does that mean someone with $50,000 in assets will be turned away? Not necessarily. If you have less than $93,410.40, you're classified as a "supported resident" and government-accredited facilities have to fill a quota of such residents. That may or may not make your parent of interest to them.
If you have more than $93,410.40 (so mum doesn't fall into a quota) but less than you need to pay the full bond (in our example, $350,000 plus the $37,500 that needs to stay in her pocket) you might have trouble, though.
"If you've got $150,000 worth of assets, a facility that wants a bond of $350,000 is likely to not even look at you," Biti says. "You can't pay the bond they want and you can't help meet the quota.
"There's this big gap of people who don't have huge amounts of assets who are not going to get into some of these facilities."
Those people might have to widen their search or rely on in-home care until increasing need qualifies them for a bond-free, high-care place.
As well as entry costs, you need to consider the ongoing costs of care.
Every resident of an aged-care facility pays a basic, daily-care fee. A resident who moved into care in the past year would be paying $35.89 or $38.65 a day (there are two categories here).
In addition, residents whose assessable income is above certain thresholds have to pay an "income-tested fee".
This could be as low as $1 a day up to a maximum of $62.11 and is calculated by Centrelink.
And, of course, you'll pay extra fees for extra services.
THE FAMILY HOME
At this point you'll have lots of questions about the family home, including whether it counts when mum or dad's assets are tallied.
Assets other than the home are divided between two spouses but Lane says the home won't count while a spouse, or someone such as a dependent child or longstanding carer who's on a benefit, still lives there.
That's one reason why you might need advice on the different financial outcomes depending on whether your parents enter care together or separately. "Staggering them going in might give you a better financial outcome - but if you do that you might not get them into the same room or adjoining rooms that might be available ... sometimes it's more important to get that right," Biti says.
And then there's the complication that not having a bond to offer may place your parent behind someone else with a bond when a facility looks through its waiting list.
If it's just mum or dad living on their own then the house will be assessable for bond purposes.
That raises the question of whether or not to sell the house to meet the bond. When you have a $500,000 bond to pay, the answer may seem obvious. But that's before considering the impact of the $700,000 left over once you sell a Sydney house for, say, $1.2 million.
"It's that surplus you have to be very careful about," Burwood says.
"People might whack it in the bank but that money is then assessable as an asset and it earns income.
"It may end up reducing mum's pension and increasing her income-tested fee. You've got to think through some alternatives."
One option would be to negotiate a higher bond, in return for discounted fees or no retention amount, perhaps. Because the bond is exempt from the Centrelink assets test, it won't negatively affect the pension or income-tested fee. This strategy could even increase the pension.
But it is possible to go too far, Lane says. "Beyond a certain point, you can't get more pension and the facility can run out of fees and charges to discount."
Burwood says other strategies might be to gift some money up to allowable limits, buy an annuity that's treated favourably for the income test, or buy a funeral bond of up to $11,000.
You could rent out the house instead to generate income to meet care costs but be aware that you need to structure things in a certain way otherwise the rent will be assessable income immediately and the house will become assessable after two years.
Burwood says the strategy here is to negotiate with the aged-care facility to pay only part of the accommodation bond and then make periodic payments on the rest. You'll pay a regulated rate of interest (currently 8.8 per cent) to do this.
"Even with a very small amount of unpaid bond, you've still got a liability to the facility and under the rules, the home and its rental income remain exempt," he says.
These and other strategies involve complex interactions and calculations, so getting advice is a good idea.
There's no single correct strategy, the advisers say, because it's not a purely financial decision. "For some people it will make sense to suggest one strategy, for other people, for emotional reasons, it will make sense to suggest another," Burwood says.
The importance of export financial advice
The Whiley siblings knew nothing about the aged-care system when, after two falls in quick succession, it became obvious their mother's days of independent living were over.
Their mother was recovering in respite care when she was finally assessed as being eligible for a place in a low-care facility.
The family quickly checked out facilities and sought advice while she was still in rehabilitation. "We had to work backwards — finding places that had vacancies and then looking at those," Gregor Whiley says of their Sydney-based search.
Whiley says he highly recommends getting financial advice. "It's not like my mother had a vast fortune — she had her unit, her Centrelink pension and her super," he says. "But the alternative is taking on the responsibility yourself for working through all the possible issues.
"It's just too hard and you're starting from absolute zero. The clock is ticking, you need to get your parent settled somewhere and you can't afford the time to go through 57 pages of Centrelink stuff.
"In low care, you're going to end up paying [a bond of] $300,000, absolute minimum, so what's the point of cavilling over $2000 to get a range of options, things explained, fears allayed and everything laid out?"
Colonial First State's executive manager, aged care solutions, Rachel Lane, says it's a good idea to get the "respite care" box ticked on the ACAT form, as this gives you breathing room and can ease your parent's transition to permanent care.
Whiley says the family managed to "move a metric tonne of stuff" out of his mother's unit, clean it and sell it to raise the bond just as the respite days were running out.
"The other thing that's critical to have sorted out is power of attorney [so you can act on your parent's behalf]," he says. Do this now, while your parent is still legally able to sign the documents.
"A situation that's been stable for five years can change in five weeks," Whiley says.
Key points
Plan ahead — your parents’ circumstances can change quickly.
Decisions will involve both financial and emotional considerations.
Consider the impact of a strategy on care costs, tax, the pension and cash flow.
Think carefully about any surplus from selling the family home.
Paying a higher bond could mean a higher pension and lower fees.
