At CoreValue we often get asked, How to reduce assets for age care?
The reason for this question is in the hope that by reducing assets, the age pension will increase and age care fees decrease.
There are a numbers ways to minimise assessable assets, and I will discuss these in this article.
Before going over these strategies we first need to explain how assets are assessed under the aged care asset and income test.
What is the Aged Care Asset and Income Assessment?
There are two different accommodation payment structures for a person entering age care. The structure that is applied will be decided depending on the assessment of the Centrelink asset and income form.
This form is requested by the Department of Health and Services or the Department of Veterans’ Affairs upon entering aged care. The way this form is completed can make a big difference in the fees you pay.
This assessment is based on the assets and income of the person transitioning into care. For members of a couple, combined incomes and assets will be assessed together regardless of the owner.
At CoreValue we do a preliminary calculation to determine this for our clients. We can also complete, lodge and check the assessment outcome of this form to ensure it is accurate (Centrelink can often make errors). We can even become nominee, so our clients don’t have to deal with Centrelink at all.
The assessment will determine whether an aged care resident will be:
1. Assessed as being required to pay a Refundable Accommodation Deposit (RAD).
2. Assessed as low means, and will not be required to pay a RAD, but may
need to pay a Daily Accommodation Contribution, (DAC). The assessment will
determine the daily amount of the DAC.
This assessment also determines the level, if any, of the Means-Tested Fee that an aged care resident is required to pay. The means-tested fee is calculated according to the assets and income of the person going into care. Therefore, clients will often want to reduce assets to reduce this means-tested fee.
Reducing the level of assets and income also has the benefit of increasing or obtaining age pension benefits. However, be careful, reducing assets too low can cause a person to be classed as low means. This may sound attractive in that a RAD would not be required to be paid. However, often this will significantly limit which age care home and possibly the quality of the age care home that the person entering care may be able to obtain. An aged care home may not want any more low means residents and refuse to take that person.
Also by reducing assets too far, the person entering aged care may now not be able to afford the aged care home of their choice. The enduring power of attorney is often asked to sign a guarantee on the aged care fees, so they need to be particularly careful to protect themselves.
Although it is frequently discussed as a creative strategy, aged care finances are complex and often poor decisions can lead to other problems with unintentional consequences. It’s best to get professional advice before embarking on an asset reducing strategy.
Now let’s discuss ways to reduce assets for aged care.
How to Reduce Assets for Aged Care?
There are many ways that you can reduce assets for aged care.
Some of the things that we would consider if we felt reducing assets for aged care purposes would be useful are the following:
- Paying a higher refundable accommodation deposit.
- Purchasing a funeral bond.
- Gifting to family members as long as it is within Centrelink exemption rules. This strategy needs to be carefully considered and you should obtain legal advice before doing so. Often an enduring power of attorney is not legally able to gift assets. An enduring power of attorney is obliged to make the best financial decision for the donor. Gifting away the donor’s funds could breach that requirement.
- Making sure that home contents are valued at fire sale value and not replacement value.
- Purchase a specialised annuity. Some annuities have the benefit of reducing the assessable assets with the added benefit of providing an income to help fund aged care costs. A properly constructed annuity may also increase or obtain Centrelink age pension.
The above considerations can be useful, however, the most effective way of reducing assets for age care is actually the family home and what’s called the aged care family home exemption.
Aged Care Family Home Exemption
If there is a protected person living in the home, then the home will be exempt for age care fees and also age pension purposes. A protected person may be a spouse, a dependent child, a carer who has been living in the home for more than two years, or a relative living in the home for more than five years , as long as they are receiving the required government benefit. Once again, it can be complex, so best to check with an expert.
Reducing Assets: Strategies to be Careful of
At CoreValue we are frequently asked is, Should I transfer mum’s home to my name? Or, Can I give all of mum’s money to me because I am the enduring power of attorney and I have the power?
These are strategies that can be dangerous. Centrelink have gifting rules and transferring/gifting a home or giving away someone’s assets are not only fraught with danger from a legal and a tax perspective, but Centrelink will count as excessive gifting for five years anyway.
This is definitely an area to get expert aged care financial advice. Please be aware that accountants and solicitors may be expert in taxation/trust structures, but they rarely understand Centrelink’s complex aged care rules.
Before considering any of the above, make sure you consult an aged care financial specialist. If you wish to discuss your situation and what strategies may be of benefit please don’t hesitate to give us a call on 1300 944 011.