Managing Aged Care Fees


As we get older we may need help with our daily living activities. The frailty of older age or some illnesses may make it harder to live independently without help from a spouse, family or aged care service provider.

Managing home care fees

Before you can apply for either subsidised home care or residential aged care, you need to be approved by an Aged Care Assessment Team/Service. You can find more information at www.myagedcare.gov.au

The fees for aged care in a government subsidised service from 20 March 2015 are shown in the diagram below (current to 30 June 2015).

As clients get older they may need help with daily living activities. The frailty of older age or some illnesses may make it harder to live independently without help from a spouse, family or aged care service provider.

The government subsidises a range of aged care services. Clients do not always have to move out of their home to receive help as the government now subsidises more home-care packages which provide a care solution in the client’s own home.

From a financial planning point of view understanding the fees payable is important to ensure clients can generate sufficient cash flow and meet all living expenses.

What does care cost?

Before a client can apply for either subsidised home care or residential aged care, they need to be approved by an Aged Care Assessment Team/Service. Further information is available at www.myagedcare.gov.au

The fees for aged care in a government subsidised service from 20 March 2015 are shown in the diagram below (current to 30 June 2015).

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Reducing the care fee

When calculating the fees, income includes amounts received from Centrelink or Veterans’ Affairs as well as assessable income from assets and investments using Centrelink income test rules.

For example, cash, term deposits and shares will be assessed under deeming rules. Clients may be able to structure their investments in a way that reduces assessable income to reduce their fees. Before making a recommendation it is important to review the client’s full situation to ensure sufficient cash flow can be generated and to determine the impact on their net wealth.

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Example:

Alice seeks advice on how to structure her investments to pay the additional expenses for home care. She is advised to set up a family trust and transfer enough of her investments into the trust to reduce the income-tested care fee to nil.

This saves her $6,401 per year as she will now only pay the basic fee of $3,566 per year.

In the first year Alice will incur expenses to set up the trust and investment strategy. She may also incur ongoing fees for reviews and operation of the trust. The insurance company pays tax at 30% which may be higher than her personal tax rate but it is the after-tax return which is important to compare.

It is important for Alice and her husband to ensure this strategy leaves them enough cash flow (or cash reserves) to pay their living expenses because to benefit from these savings they are limited in their ability to make withdrawals from the family trust.

Alice and her husband also restructured their wills and estate planning due to this change in assets.

Note: This strategy may save a part-pensioner up to $5,106 per year and a self-funded retiree (or person receiving a very small part-pension) up to $10,211 per year. These savings could double if both members of a couple are accessing home care packages.

If a client is likely to pay a high income-tested fee, you may wish to consider whether the client would benefit from setting up a discretionary family trust and gifting money into this trust. The trust then invests this money into a Centuria Investment Bond. This won’t change how much the client has in assessable assets. But, assessable income may reduce because the actual taxable income generated by the family trust is used. As long as the client does not make withdrawals from the bond within the first 10 years (or until death of the life insured) there is no taxable income for
the trust.

Developing an Advice Solution

Before clients make any changes to investments a review of their full financial situation is important. The savings in home-care fees needs to be considered in conjunction with cash flow, eligibility for Centrelink or concession cards, aged care fees, taxation and estate planning.

If a client is making a move into residential aged care, the same strategy may help to reduce the means-tested part of their care fees but as this fee is based on assets and income and the strategy only reduces assessable income the use is more limited. The strategy will only provide a benefit if the means-tested part of the care fee can be reduced to below the annual cap and the savings outweigh any costs.


Disclaimer:
All information in this document is simplified and viewed from a general perspective. It is also based on a broad understanding of current rules and guidelines at the time of producing this document. It does not represent ‘financial product advice’ as defined by the Corporations Act 2001 (as amended by the Financial Services Reform Act 2001), and no specific product is recommended. Appropriate and independent professional advice should be obtained by individuals before making any decisions based on the contents of this document. This document is issued for the use of financial advisers only and is not to be provided to clients. Issued by Centuria Life Limited ABN 79 087 649 054 AFSL 230 867.

You can download a PDF version of the strategy here.