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Understanding the new rules
Rodney Horin of Joseph Palmer & Sons explains the new procedures set in place
for the aged-care industry, and offers advice on how to reduce fees.
A
lmost 11 months ago, on July 1,
2014, several reforms were
made to the aged-care industry.
These reforms – which mainly
addressed the distinction between low
and high-care, up-front accommodation
costs, retention amounts, daily fees,
calculation of assets and assessment of
home values – made an already
complex industry even more
complicated.
The Centrelink Form, for instance,
which must be completed when
applying for aged care, grew to 32
pages and now requires the answering
of 144 questions, many of which require
the lodgement of supporting paperwork.
Middle-class Australians
are worse off
Under the new rules, middle-class
Australians, who make up
approximately 50 per cent of those
entering aged care, are significantly
worse off than they were under the old
rules. By contrast, wealthy people are
better off under the new rules because
the new means-tested fee has an annual
cap of $25,000 (indexed) and a
lifetime cap of $61,000 (indexed).
Before the changes, this fee was open-
ended. The new rules have had little
impact on people with few assets, who
receive as much support as they did
before the changes.
Under the new rules, those in the
middle ground are faced with higher
costs and more difficult decisions to
make. For instance, the new rules
include a means test that measures both
assets and income. This replaces a
means test that measured income only.
Today, a person’s wealth includes all
their assets, including the family home
(maximum value of $157,051 per
person indexed) and investment
properties, shares and other
investments, antiques, paintings, bank
accounts, term deposits, motor vehicles,
family trusts and company holdings,
loan accounts and superannuation
funds.
The treatment of family trusts also
adds a significant layer of complexity.
Before making any decisions, a person
must consider the types of assets they
own, the current returns they get from
those assets and the capital gains tax
implications of selling. After all, the
overall aim is to reduce the aged-care
fees where possible, while increasing
pension entitlements.
Prepare ahead
Under the new rules aged-care facilities
have provided transparent information
on refundable accommodation deposits
(RADs) and how they can be paid. The
three options are either as full lump
sum, part lump sum and part by interest
(currently set at 6.36 per cent, known
as daily accommodation payments
(DAP), or fully by DAP).
One thing that has not changed
under the new rules is the importance of
time spent preparing for aged care in
advance of a crisis. People usually only
start looking into aged care when
children are told by a doctor that their
parent cannot return home. The hospital
requires the bed and transition to an
aged-care facility needs to be done
quickly, often during emotional and
confusing times.
Pressing issues that will require
immediate attention include: How do we
pay the aged-care room cost? Do we
have funds available? Should we retain
or sell the family home? What cash flow
will be required to pay ongoing costs?
Each decision has a different impact
on the outcome, including the effects on
aged pensions, and therefore requires
careful consideration.
Six key issues to
consider include:
1. Room costs may be negotiable.
2. With the daily accommodation
payments attracting interest rates of
6.36 per cent, it might be preferable
to pay a lump sum.
3. Liquidating assets may have costly
tax implications.
4. Home property can provide funds if
sold.
5. Alternatively, home property could
be rented out, but care is needed in
this process, and aged-pension
could be affected.
6. Moving funds from investments can
be worthwhile – such as changing
from asset/income to asset only.
Five key ways to reduce
aged-care fees:
1. Negotiate on the refundable
accommodation deposit (RAD)
and examine alternatives.
RADs (formerly known as bonds) can
be as high as $1 million to secure a bed
in an aged-care facility. In many cases
these are negotiable, depending very
much on the demand for beds – and the
supply of beds – in each aged-care
facility. Aged-care facilities prefer that
the RAD be paid as a lump sum up
front, but must offer alternatives.
Alternatives are to pay interest payments
only, or a combination of the two. A
resident has 28 days to decide which
payment option to take. A bank
guarantee is not an alternative.
2. Reduce the Centrelink Fee.
The Centrelink Fee is a means-tested
fee – taking into account both income
and assets – levied by the government
and collected on their behalf by the
aged-care facility. The fee no longer has
a maximum daily amount, but has an
annual cap of $25,000 (indexed) and a
lifetime cap of $60,000 (indexed). Two
ways to reduce the Centrelink Fee are to
take out an aged-care annuity or buy an
insurance bond.
3. Regular assessment of family
finances.
For instance, an elderly person may
wish to consider whether to remain an
appointor of a family trust if he/she is
approaching aged-care age. All income
and assets from a family trust may be
deemed to be 100 per cent owned by
the appointor, therefore dramatically
influencing the Centrelink Fee when the
person enters aged care.
4. Examine what you get for the
Extra Services Fee.
The Extra Services Fee, which can be
as much as $100 per day, is supposed
to give the patient extra services at the
aged-care facility, including more
attention and access to people like
podiatrists, hairdressers etc. Make sure
you are getting value for money with
this fee.
5. Protecting pension entitlements.
The RAD is an excluded asset for
social security purposes. Therefore, in
some cases, where existing cash is used
to pay for the RAD, it can result in a
new or increased pension entitlement.
However, more often, a family home is
sold to fund the RAD. In this case, while
the home used is to be excluded,
proceeds of its sale are counted as an
asset. As a result, the cash remaining
after paying the RAD can often result in
a pension being reduced or lost entirely.
There are ways to maintain, or even
increase, one’s current entitlements.
Rodney Horin is managing director
of Joseph Palmer & Sons,
aged care specialists.
For more information,
call (03) 9601 6800 or visit
www.jpalmer.com.au.
2 Golde nYears
Australian Jewish News Friday May 29, 2015Golden Years Supplement