One thing we can all be sure of is that we are all getting older together. Growing old and eventually becoming an “elderly” member of society is a circumstantial situation most are likely to face. This circumstance is also becoming more popular, with advancements in modern medicine, technology and looking after ourselves. Prolonging our life is a good thing together with the proportion of elderly across society growing at an accelerated rate. However, this growth is giving rise to serious aged-care issues, primarily in the realms of health care and accommodation. Discussed here are some of more serious circumstantial issues being faced by both our elderly, carers and members of their families. Issues like financing aged care, lack of regulation around aged-care advice, aged accommodation and pressures being faced by aged-care providers are all touched upon in the awareness read. By becoming better informed about these issues, the intention is that you will be better placed and be able to be more proactive in dealing with these issues when and if they arise in your life.
The situation has been exacerbated by recent government funding cuts funding ($2 bill reduction over the next 4 years) which is causing aged care facilities to struggle in coping with the growing demand for accommodation and aged care. As the “baby boom” bubble works its way though the economy an even larger demand for aged care accommodation and support is at the door step of Government spending. Our “baby boomers” are living longer and living better than any previous generation and with their pockets filled with superannuation contributions, they are well placed as an electoral force to demand better aged-care. Government and consumer spending on human services is worth about $300 billion a year. If consumers were given more information and choices between public and private service providers, this spend could be much much lower, services improved and consumer well-being improved. The aged care sector is one of the least reformed sectors of the economy and in serious need of significant innovation to place ordinary people at the centre of service provision. At the heart of it all is how to fund our future aged-care.
Working out how the children of an elderly parent fund care for their mum/dad is one of these issues. It is not straight-forward, nor is it clear how the financial model for aged care is regulated and proper advice on this complex subject is obtained. This is especially true if the need is brought about by a sudden event that renders the elderly parent incapable of looking after themselves(s) any more. In other words, needing to obtain Aged Care and Accommodation for loved ones can quickly become a costly affair. Those designated as their custodians need to be aware of all the options available to them and their legal responsibilities.
Without a doubt, until a loved one either chooses to move to an Aged Care facility of their own accord or is forced to move because of some event (stroke, heart attack, dementia, etc.), staying at their home is typically always the best option for all parties involved. But ever since the Federal Government’s 2014 Aged Care reforms, families have had to find increased funds to move elderly relatives into Aged Care. This has been further made even more difficult by the current housing boom pushing the cost of accommodation to an all-time high. The number of people over 80 year old is currently one-in 26, increasing to one-in 18 by 2030. This trend will make this issue more and more challenging as time goes on.
Our current governments face a serious issue regarding the future funding of aged-care. The mechanisms, the government uses to fund residential aged-care, are currently inadequate to deal with the pressure of an ageing Australian population
Hanging onto the Family Home
Rather than having to force sell the family home to fund Aged Care, several other less dramatic options are available. Here the family home can be used as collateral to fund Aged Care, rather than have it retained as an inheritance for the family. The cost of Residential Aged Care may be heavily subsidised by government (Refundable Accommodation Payment – RAD), but there remains two major costs:-
- Accommodations fees and
- Care fees (85% of single pension – $47.86/day, capped at $60,000 over a lifetime).
The RAD is the capital value of the room the resident occupies. The average RAD outlay today is $350,000 but it can be as high as $1mill., depending upon the Aged Care facility & its living conditions. The RAD can be payable in full or paid as a daily accommodation payment (DAP). The DAP is the interest rate set by government (currently 6.22%) against the RAD. Selling the family home would avoid the DAP 6.22% government interest charge, as the system is designed to reward those who keep the family home. The DAP operates as an interest only loan arrangement. This is usually a daily payment that is billed to the resident monthly.
The value of the family home is capped at $157,987.20 for the purpose of the means tested care free calculation. A home can be totally exempt if the spouse is still living there. The family home is totally exempt from the aged pension eligibility calculation. So retaining it can mean lower aged care fees and a higher pension. The decision on how to pay the RAD is key to:-
- Care fees
- Centrelink or Veterans Affairs entitlements
- Cash Flow
- Asset protection
- Estate planning
There are typically 5 funding options available for someone wanting to enter a residential aged care facility.
- Selling the family Home
If there is no obvious reason to keep the family home then it can be the most obvious asset to sell to fund a RAD. The most obvious reason to retain it being that the aged owner is able to and desires to live there or doesn’t want it sold in case they are able to return. The key issue with selling is that there are likely to be surplus funds available after the RAD has been paid. Any surplus would most likely need to be invested.
Also the full value of the home is counted towards the means-tested care fee. Centrelink deem that excess funds earn 3.25%, despite what a bank’s TDAs (term deposits) rates might be (even though there’s is less). This deemed income is used to calculate pension entitlement and the aged care fee. Few other options exist, other than:-
- Gifting the money (limited to $10,000/year or $30,000 over 5 years)
- Prepaying a funeral or investing $12,250 in a funeral bond
- Investing in an insurance bond within a family trust
- Putting money into an annuity (not subjected to deeming) gives back capital/income, like Challenger’s Care Plus annuity product
- Keeping the House, by selling down other assets
Take for example a resident with a home worth $800,000 and an asset of a bank TDA also worth $800,000. Were they to move to an aged care facility which was wanted with a market value of say $600,000 (RAD), selling the house would mean $1million would need to be invested to total ($800,000 + $800,000 – $600,000). No aged pension would be paid and their means-tested care fee would be $82/day for 315 days (until the family home cap is reached).
Keeping the house and using $595,000 of the investment for the RAD, a DAP of $0.85/day would be paid. They would receive $834 a fortnight in aged pension and incur the means-tested care fee of $39/day for 365 days. Assuming the house was rented, the pension would remain the same (as rent is exempted) but this would increase the means-tested care fee rate at the rate of $0.50 per dollar in rent (after expenses are deducted).
With this strategy, it is important to reduce the capital gains tax involved to achieve the cheapest tax solution.
- Reverse Mortgaging
Only 3 lenders are known to provide a “reverse mortgage” funds (Bankwest, Heartland Seniors Finance & Macquarie Bank). CBA & St. George require the borrower to live in the house. Only La Trobe FAM has an Aged Care Loan product that allows people to use equity (in their home) without repayment until they die or leaves the facility, but only over a limited period. Such a product provides time for those involved to better think through how best to deal with an ever changing situation.
Such a loan is available to those over 70yo to draw on the equity in their home specifically to pay the RAD. No bridges are burnt and no one in the family is taken advantage of. This keeps the home in the family, allows their parent(s) to still visit their home or renovate it before sale and avoid the fire-sale of a family home, etc.
The Latrobe FAM loan is 50% of the value of the home (LVR) and a loan rate of 5.99% for the first 5 years, rising to 7.99% in years 6 & 7. No interest is payable until the LVR reaches 70% – which would take about 7 odd years at current rates. The loan is repaid when the borrower leaves the facility (death/return home), whereupon the home is sold or the loan term is reached. You will never owe more than the house is worth.
- Deducting the DAP from the RAD
Aged Care facilities must provide the ability to draw down from any RAD deposit. If a part RAD is paid then the aged resident must be able to pay the outstanding DAP from the RAD. Paying as much as possible from the assets outside the home will avoid having to pay the 6.22% interest used to calculate the DAP. It may be necessary to have the DAP deducted from the RAD to ease cash flow pressure, especially is the RAD is far greater than the assets outside the home.
If the resident receives an aged pension (in full or part) and uses assets outside the home to pay towards the RAD, this can increase pension entitlement and reduce the means-test on the care fee. For example, if the market price RAD is $600,000 and you can afford to pay $300,000, this leaves a DAP of $51/day. So instead of paying this from your cash flow, you can have it deducted from your RAD. Your DAP will increase as your RAD balance reduces.
- Family Paying the RAD
A resident’s style of living at an Aged Care facility is limited by their ability to pay the RAD. The family can pay the RAD or increase the contribution to get mum/dad their preferred facility. A formal loan agreement for the family contribution is best. Say if one child pays the RAD (differential) to ensure quicker entry before the house is sold, then the parent repays the child once the house is sold, Centrelink/DVA views that money as a gift unless there is a loan agreement in place. The loan agreement also helps if the RAD is repaid to the estate once the resident dies.
It may be that one child pays the RAD but the will decrees that the estate be divided across several children, then the loan agreement protects the child giving the money to pay the RAD. Regardless of where the money comes from, when it is paid the RAD becomes the aged care resident’s asset.
With the reduced federal government funding support for aged care, existing aged care operators face challenges of scale in delivering the level of aged-care services required depending upon the situation of each aged-care person, reducing their costs and devising new revenue-based strategies. Given the growth in our aging population. there has been an increased take-up of care services outside the traditional residential aged care setting. It has been estimated that as many as 76,000 new residential aged-care places will be required by 2023-24 to meet demand. In addition, the number of home care places is forecast to increase to 158,000 by 2025. It means that when people turn to residential aged care, they are likely to be older, more frail and requiring higher levels of care. All at a time when aged care operators are being forces to low, perhaps medium, levels of care traditionally the domain of residential aged-care providers. As a result residents tend to stay for shorter periods and change their payment preferences. Co-location with retirement villages is a likely structural change to take place within the aged-care sector. The need for scale will increase the tend to merge and acquire aged-care facilities as well as joint venture activities across the continuum of care.
Regulation of Aged Care advice
As the complexity of financial arrangements around aged care grows, the call for greater (ASIC?) regulation in this lucrative business also grows. Ordinary people involved in aged care for their elderly parents are concerned that, in the absence of official oversight, they are at risk of being subjected to inexperienced, misinformed or even unscrupulous planners at a time when they need to make important financial decisions, often under distressing circumstances and in a hurry. Some financial advisers are magically calling themselves “aged care specialists”, when in fact they have no expertise in the field. Aged care financial advice is becoming one of the most complicated areas of personal finance, far more complex than the ordinary run-of-the-mill advice over budget planning, transitioning to retirement and salary sacrifice planning.
For example, care providers (such as Estia Health, Regis Aged Care, Japara and others) are charging an additional fee for care residents who choose to pay for their accommodation in a lump sum, rather than in instalments. The way in which such fees are being levied varies across care providers. Currently aged care financing is not a financial product and is therefore not subjected to governance by ASIC. Vulnerable consumers are being exposed to an area with poor regulation and with little oversight over the provision of aged care financial advice. Serious questions are being raised about the sustainability of earnings at many of our current large aged care providers. ASIC should probably be governing the provision of aged care advice, estate planning, superannuation and retirement planning.
As things stand today there are two useful legal arrangement that should be considered:-
- Enduring Power of Attorney for when an elderly relative is deemed not fully capable of dealing with their own financial affairs. In such cases the elderly are able to appoint one or more persons (eg. mature members of the family) to make informed decisions regarding their finances that can be shown to benefit the elderly person involved
- Enduring Guardianship for when an elderly relative is deemed not fully capable of dealing with their own life style and standard of living. In such cases the elderly are able to appoint one or more persons (eg. mature members of the family) to make informed decisions regarding their accommodation, health and life style decisions that again can be shown to benefit the elderly person involved
Aged Care Funding and the Family Home
With both demands for the Old Age Pension and Aged Care growing at a rate beyond what which governments can continue to afford, governemnt attempts at operating within a balanced budget suggests something has to give. The elephant in the room is the politically sacrosanct “family home”. It is estimated that $926 billion is locked up in homes owned by our retired elderly. Unlocking this wealth is one of the more likely solutions to our aged care and accommodation issues. Housing wealth of aged people is more than half their total wealth. The current asset test for aged care includes a provision of only $140,000 for equity in the family home. Comparing this with the average value of homes in Sydney and Melbourne, $140,000 is an extremely low figure. Aged care cost are expected to double to $26 billion per year in less than a decade. For 2013-14 it was determined that the medium home value of households, with at least one person being over 80, was $460,000. Many aged care providers are asking $450,000 – $550,000 to secure a reasonable unit/room in aged-care facilities located in the larger more popular cities. Private contributions make up about 7% of formal aged care spending. In additional there can be many hidden costs such provider can charge at their own discretion (eg. for specific specialist services, exit fees, property depreciation, etc. Government also believes/knows there has been over-claiming by some aged care providers in this realm.
By unbundling aged care funding into care and accommodation, there would appear to be 4 solution options to be considered:-
- For accommodation – Seniors can draw down on home equity using reverse mortgages. The equity in people’s homes can be used to pay not only for their accommodation but their care. This is something that has been slow in taking up, primarily because the children of Baby Boomers hope to get their hands on unencumbered tax-free assets.
- For aged care – Construct schemes whereby the bond that seniors might be required to pay towards the capital cost of their aged care accommodation could be recovered from their estate
- Provide seniors with ready access to their superannuation – exhaust this asset prior to using the equity in their home. Given the number of seniors in this favourable situation is fairly small, this would not make a significant contribution to the bigger financial burden
- Finance the cost of aged care accommodation and care out of an inheritance tax – a most unpopular tax
Either way, home equity features in the two most likely scenarios – progressive reverse mortgage and/or instant recovery from the estate which includes the family home.
Aged Care support at Home
In July 2015 the Australian Federal Government made available a revolutionary new package for the elderly called Consumer Directed Care (CDC). CDC is designed to empower the elderly who live at home but no longer find they are able to live independently. The Department of Social Services (DSS) administers the package as part of its aged care facilities; a package specifically for the elderly who wish to continue to stay at home and who have been approved to receive aged care. When an elderly person is deemed to be eligible for additional aged care funding that can be delivered to their home, they are able to acquire such care from a range of authenticated and approved CDC providers.
The elderly are empowered to shop around and choose which services they require and to determine, from the various providers, which one delivers “the best bang for bucks”. This home care revolution and self-management service provides access to local independent care and support workers for hire. There are website available (like Better Caring) which helps those in need of such home care worker support to find and directly hire the right person for them. It is up to the consumer (the elderly or supporting family members and friends) to shop around to look, find and hire the right qualified person for them. This shopping around not only saves money but ensures you get the specific services needed. The care workers are available to support the elderly in taking part in a wide range of activities and engagement with the community. In this way the government funding to the elderly is well spent in ways that the empowered elderly determine what types and style of engagement they seek.
Every Home Care package is consumer directed, meaning you have an individual budget and can choose how to use it. You can spend it on what’s important to you, be it domestic assistance, social outings, personal support or whatever. You choose who provides the services and when they come into your home to provide them.
Elderly Aged Care Facilities
At some time in the life of our elderly, it may reach a stage when (for whatever reason) they cannot or no longer want to stay at home. The three most common reasons for this are:-
- inability to maintain their home nor self in delivering an acceptable quality of life, even being assessed as being a danger to others
Situations such as these are more likely to occur when the elderly find themselves living alone after their partner has passed. One of the better options to consider for the elderly in this stage of their life is to transfer from home living alone to an authenticated Elderly Aged Care facility where other similar people live and where an array of professional care services exist on site. Some call these facilities Nursing Homes or Residential Care facilities. In simple terms it means that the elderly residents requires onsite support to maintain a reasonable quality of life through their dependence upon an array of health care professionals (up to 24×7 hours per week). Such services are not always able to be provided while at home; because of the need for the regular timely attendance of professional health care providers (doctors, pharmacies, dieticians, podiatrists, phsios, etc.) Typically the residence care accommodation consists of a large bedroom area (sometimes with including a kitchenette) and a separate en-suite. Some of the key features often available from the site, include:-
- Housekeeping and the provision of fresh linen
- Staffed and fully equipped laundry
- 24 hour heath care services attended by certificate staff
- A registered nurse 5-7 days a week
- Personal choice of Doctor and Pharmacist
- Podiatry clinic and Pathology visits
- Common areas with Foxtel for communal activities and a variety of classes
- Weekly shopping bus outings / concerts / theme days /sports events
- Hairdresser and libraries
- Fully equipped kitchen / all meals freshly cooked
- 24 hour maintenance service
To enter an Elderly Aged Care facility “it is not compulsory to have an aged care means test but if you do not have one you may not receive assistance from the government with the costs of your aged care, and you may be asked to pay the maximum fees. You can ask for an assessment to be done either before or after you enter care. If you are entering residential care you must complete the Combined Assets and Income Assessment application.“ Federal Dept of Human Services
- Your income will determine the income-tested care fee you may be asked to pay
- There are annual and lifetime caps (maximum fees) that limit any income-tested care fees you may be asked to pay, for example:-
* Home Exemption – $157K
* Care fees – $14.13.day; $5,146/year
- You can apply for financial hardship assistance if you believe you will have difficulties contributing to the cost of your care
- The types of fee(s) in residential care includes:-
- A basic daily fee – covers the cost of meals, power, laundry, etc. (home care – $9.85, residential – $47.86)
- A means-tested care fee – based upon an income/assets assessment additional costs for the basic services may be required
* single – $25.5K, Couple – $25K
* Asset free – $46K, 1st Threshold $157K, Second Threshold – $382K
- An accommodate fee – cost of your accommodation in the facility. The Australian government will pay for part or all of the cost for some elderly, whereas others may have to pay the fully amount agreed by the facility provider. Some with very low assets and income may be determined by the government to have no Accommodation Contribution payable
- Fees for additional services (care and/r Accommodation) – arise where additional services above the basic care and accommodation provisions are requested. These again are agreed with the care/accommodation provider(s)
The Australian Government Dept of Health has an agreed “Schedule of Fees and Charges for Pre-1 July’16 Residents” for residents who are classified under the Aged Care Act 1997. Options for funding such (large costs) were touched upon earlier (under the heading Funding Aged Care). To say the least, this is a complex and somewhat unregulated industry that warrants serious consideration.
This is that special form of care, provided for those that are deemed to be dying – it’s known as “palliative care”. Palliative care often starts in a hospital in order to better manage pain levels for the terminally ill. Once this pain management reaches a level where the patient is made reasonably comfortable, some may still die but others transfer to a Hospice facility. The distress patients, loved ones, family and friends experience when making decisions regarding palliative care becomes increasingly more difficult during the final days of the terminally ill. There are certain taboos about discussing death which can prevent this process from progressing effectively – some real, some not so real. According to the Australian Productivity Commission, “Patients often rely on medical professionals to initiate conversations about palliative care, many of whom are inadequately trained, and intimidated by, holding such discussions.”
Demand for palliative care is soaring. Over the past 10 years, the number of palliative care-related hospital admissions has grown by over 4% a year. This is twice the rate of all hospital admissions. Back in 2015, 40,000 patients used palliative care but the Commission found that there was little data on carers and family experiences regarding the quality and standard of this care. As the Commission put it – “There is little evidence that (palliative care) service providers are being held to account for relatively low service quality.”
Ideas such as having more service providers compete for palliative care services and introducing great regulation to the industry would make providers more accountable for their performance and spur innovation to make patients’ final days more comfortable. Private health insurers could be encouraged as well to fund community-based palliative care organisations. These are often charities that rely heavily on donations, but almost none are ever funded by the health insurance industry itself.
For those contemplating their palliative care options, it is essential to be aware of these issues so that well informed decisions are made to assure the relative comfort of your loved ones during their final days. It is likely that the Federal Government will make some policy changes based upon the Productivity Commission’s final report. It is therefore important to be abreast of any ensuing legislation that might arise, especially noting the time(s) when it is to be put into law and thereby relative to your palliative care situation.
Finally, the need for probate arises when a person becomes deceased and there is a requirement to pay any outstanding debts and/or distribute the deceased’s remaining assets (usually in accordance with their will). The executor of an estate is responsible for collecting the deceased’s assets, paying any debts and then distributing the assets to the beneficiaries. An executor could either be the deceased lawyer or person(s) the deceased has designated in their will to be their executor in the event of their death.
A grant of probate is a legal document that authorises an executor (or executors) to manage the estate of a deceased person in accordance with the provisions of the deceased’s will. The executor can take the grant of probate to persons that currently have assets of the estate or to those that are debtors of the estate (such as banks and retirement villages that are holding bonds) and require them to transfer the assets or monies to the executor.
Uncontested applications for grants of probate are considered and determined in chambers by a Registrar of law in a Court. The Supreme Court of New South Wales only has jurisdiction if the deceased left assets in New South Wales. A grant of probate will not be made if the deceased had no assets in New South Wales. If a deceased person owned assets in more than one state or country it may be necessary to apply for a grant in each place where assets were located. Depending on the type, size and value of the assets located in New South Wales it may not be necessary to obtain a grant of probate in New South Wales. There is no statutory requirement to obtain probate in every case. Some asset holders will often release smaller amounts without the need for probate to be obtained.
If assets of the deceased were jointly owned as joint tenants (that is where the co-owners did not own distinct portions of the property – no person has a separate share), if on the death of one of the joint owners (or tenants) the property automatically passes to the remaining joint tenant or tenants. There would be no need for a grant if all of the deceased’s assets were held as joint tenants with someone that survived them.
If real estate is held solely in the name of the deceased or a share of real estate is owned by the deceased as tenants in common with someone else, a grant of probate will be required in order to deal with the asset. The certificate of title for real estate will show if the property was held as joint tenants or as tenants in common. The executor can contact the Land Titles Office to check this information.
If there is no real estate then you should consider approaching the asset holders (eg. banks, superannuation funds, insurers) to determine if they will transfer the assets without a grant of probate being made. It may be possible to have the asset holder transfer the assets by showing them the original death certificate and will and signing a declaration of your entitlement and/or an indemnity in favour of the asset holder in case someone else subsequently makes a claim. This should be considered, particularly if the executor is the sole beneficiary under the will.
Different asset holders have different criteria and requirements for releasing assets. Note also that the proceeds of life insurance and superannuation generally do not form part of the estate. However, this will depend on the terms of the relevant policy. Despite this, sometimes the trustee will require a grant to be made or resealed before they determine who is entitled to the superannuation or insurance proceeds.
If an application for probate is filed after 6 months from the date of death of the deceased, an explanation must be given to the court accounting for the delay. This can be done by either including an explanation in the affidavit of executor or lodging a separate Affidavit of Delay.
Where the executor(s) are members of the family (son/daughter), often the best approach is to place the matter in the hands of a lawyer (known to the family) to deal with this in a professional manner.
The information made available here should empower ordinary people, involved in funding for aged care, to at least make better informed decisions when developing an effective aged care strategy for either yourself or a loved one. An “Awakening” link will follow, once an authenticated Subject Matter Expert (SME) in Aged Care has been assigned with responsibility for all content in this realm, including this “Awareness” material.
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