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Issues to consider when children pay their parent’s RAD

In many cases most of a person’s wealth is tied up in their home.

For many people, the home is sold to fund the payment of the Refundable Accommodation Deposit (RAD) and other aged care fees. However, there can be several reasons why someone would want to keep their home.

For people who want to retain their home (with most of their wealth tied up in it), this can present a difficult cash flow situation when funding the RAD or the equivalent Daily Accommodation Payment (DAP). When the RAD is unpaid, DAP is then incurred, which can place significant pressure on cash flow. Thoughts may then turn to funding the RAD with assistance from children (or other parties).

Not many people will have large lump sums available to pay a RAD and, in some cases, children may pool their combined resources to fund a parent’s RAD. If this is the case, then an issue to consider is that the RAD will be an assessable asset for the parent when calculating the means tested care fee, regardless of who has paid it.

Also, it is particularly important that when there is a transfer of funds from children to pay for a parent’s aged care fees, that legal advice is sought. This is relevant as a RAD forms part of the resident’s estate and the aged care facility is bound to make the refund of the RAD to the estate upon the resident passing away. Legal advice is extremely important to ensure the estate pays back the RAD to the party that paid it.

Another issue to consider is that if the home is retained, it then becomes assessable as an asset after 2 years from entering care when calculating age pension. Depending on the value of the home, this can result in a reduction or loss of age pension entitlements altogether, placing additional pressure on cashflow.

Author
Certified Financial Planner ® | B.Bus | Dip.Bus | Authorised Representative No. 314983

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