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Advice makes all the difference with aged care

NEW rules come into force on 1 January 2017 that change the way assets are considered when the Age Pension is calculated. In the lead up to Senior Week, Adam Douglas, Financial Planner at MyState Wealth Management says, “It’s worth thinking about how you or a family member may be affected by those changes, to ensure anyone who is going into aged care after that date is in the best possible financial position”.

Under the rules the Refundable Accommodation Deposit (RAD) is exempt from the assets test for Centrelink and Department of Veterans’ Affairs purposes. So paying a higher RAD could help increase pension payments. The RAD balance is, however, assessed as part of the aged care means-tested fee.

Under current rules, if an aged care resident kept their family home it is exempt from the assets test for at least two years. If the home was rented and the resident paid a Daily Accommodation Payment (DAP), then it is indefinitely exempt under assets and income tests.

For those that enter aged care from 1 January 2017 (subject to the passage of legislation prior to 1 January 2017) rental income from the family home will be assessable under means tests for the Age Pension no matter how the accommodation payment for the aged care accommodation is structured. Additionally, the home will no longer be indefinitely exempt from assets and income tests after the end of the two-year period.

As this shows, the rules around aged care payments and pension assessments are complex. It’s worth seeking financial advice to ensure the best financial outcome, as this case study shows.

Mary, 85, is preparing to move into aged care accommodation. The way she structures her assets in the lead-up to this move will have a material impact on the value of her estate.

She has sold her home for $700,000 and is exploring options to ensure she maximises her Age Pension and minimises the amount she spends on her aged care accommodation. She has sought guidance from a financial adviser about the best way to structure her finances. The two options that were presented to her show the value of advice.

The way Mary structures her investments will impact her Age Pension, means-tested care fee and therefore her cash flow and the value of her investments. If Mary pays a $300,000 RAD, how she invests the remaining $400,000 will impact her financial position. Investing some of the remaining $400,000 in an annuity rather than term deposits may allow Mary to increase her Age Pension and reduce her means-tested care fee, benefiting her financially.

As this examples shows, the rules that determine how much a resident pays in aged care fees, as well as the tests performed to calculate the Age Pension, are incredibly complicated. They require expertise to navigate to ensure the best possible outcome is achieved.

All too often, families don’t consider these issues in depth before an elderly family member needs to move into aged care. In these circumstances decisions can be made in haste that don’t achieve the best possible result.

To ensure wealth is preserved, it’s essential to seek the advice of an experienced financial adviser who can explore the different options available. This is the best way to ensure anyone moving into aged care does not end up paying more than necessary, or receiving a reduced pension.

The best idea is to look into your options well before you or a family member need to move into aged care to preserve wealth now and into the future.

If you’d like to find out more, call Matthew Khourey at MyState Wealth Management on 1300 651 600 or visit mystate.com.au/wealth

Information is current as at 19 September 2016. This is general advice only, before making any decisions please speak with a MyState Wealth Management Financial Planner.