O'Donnell Kerr Financial Planners
  • 21 August, 2020

Aged Care - what a difference $5,000 can make

A person’s aged care costs are generally based on their income and their assets.

The basic premise is that if you have the appropriate level of assets and income, you will be required to pay the Refundable Accommodation Deposit (RAD) to enter a residential care facility and an ongoing Means Tested Care Fee (MTCF). If you do not have the required level of assets or income, the government will subsidise your aged care costs and the on-going fees will be less unless your financial situation changes.

That all seems fairly simple and straight forward, doesn’t it?

However, like all good pieces of legislation, there is a financial “threshold” which applies. If you fall above the threshold, you are responsible for paying the RAD to enter the residential care facility of your choice and the ongoing fee. If you are below the threshold, the government will pay your accommodation costs, but depending on your financial situation you may also need to contribute.

Logic would indicate that if you are below the “threshold” your costs would be less; be careful this is not always the case. The following example is a very clear indication that logic does not always apply when it comes to aged care fees.

An elderly couple who own their own home, are receiving the full age pension and have combined assets excluding their home of $340,000. In this particular scenario Dad is not well and enters residential aged care.

How much does Dad have to pay?

As Mum is remaining in the home the value of the home is not taken into consideration. They do have a joint bank account with $335,000 and household and personal assets of $5,000, only half of these combined assets are considered, as only Dad is entering care – an assessable asset total of $170,000.

Dad’s assessable assets and income are below the “threshold”, so his costs are the basic daily fee of $52.25 and he is not required to pay the Refundable Accommodation Deposit of $430,000. However, even though he is below the “threshold” he is still required to contribute to his accommodation costs by paying a Daily Accommodation Charge of $57.45 bringing his total daily fee to $109.70 or $1,535.80 per fortnight.

Could his situation be improved?

What would happen if instead of only $5,000 in household and personal assets mum and dad had $10,000? This of course would increase dad’s assessable assets to $172,500.

Dad’s assessable assets are now above the “threshold” and he is required to pay the RAD of $430,000. As mum and dad’s cash is limited and they cannot afford to pay the RAD, Dad will pay a Daily Accommodation Payment of $48.30 per day. This amount is the interest payable at the current rate of 4.1% on the outstanding balance of the RAD that has not been paid, in this case $430,000.

Dad’s total fees are the Basic Daily Fee of $52.25 and the Daily Accommodation Payment of $43.30 bringing his total daily fee to $100.55 or $1407.70 per fortnight. Dad’s situation has been improved by $128.10 per fortnight with only an extra $5,000 in assets.

The extra $5,000 has made no difference to mum and dad’s age pension. They are both still entitled to the full age pension at the seperated single rate of $944.30 per fortnight.

As I have always said, for a person entering aged care or for their children it is a stressful time and the legislation is complicated. The decisions that have to be made are extremely important and need to be made considering all the relevant information and where possible, made before a person needs to enter the nursing home.

As you can see just by actually increasing mum and dad’s assets by $5,000 a substantial difference can be made from a financial perspective. Please do talk to an expert before you a decision is made which cannot be reversed.

I should also mention that the “threshold” changes on a yearly basis.

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