In many cases a person’s wealth is tied up in the family home. In many situations, the home is sold to fund the payment of the Refundable Accommodation Deposit (RAD) and other aged care fees. However, there can be many reasons as to why people want to retain the home.
If the home is retained, the resident can then face a challenging situation when it comes to funding their accommodation costs. Any RAD that is unpaid will incur a Daily Accommodation Payment (DAP). This can place significant pressure on cash flow and present another source of anxiety.
Thoughts may then tend to turn to funding options, in particular assistance from the client’s children (or other family members). With the average RAD being around $550,000, not many people will have lump sums readily available to pay the RAD. Therefore, resources may be pooled between siblings (or the wider family) to pay the RAD.
If there is a transfer of funds from children to pay the care fees for the parent, it is important that legal advice is sought. The RAD forms part of the aged care resident’s estate regardless of who paid it, and the aged care facility is bound to make the payment of the RAD to the estate upon the resident passing away.
Therefore, this should be reflected in the parent’s Will to ensure the estate pays back the relevant amounts to those who contributed them, otherwise there can be unintended consequences (particularly if there is conflict between family members).
Also, in the situation whereby the family home is retained (and we assume there is no protected person living in the property), it is important to note that after 2 years from leaving the home to enter aged care, the client is then treated as a non-homeowner and value of the home will be included as an asset when calculating their age pension. This will result in a significant reduction or loss of age pension entitlement altogether, depending on the value of the home.
Matt Kelly CFP®
Authorised Representative (No 314983)
