How to fund parents aged care


Finding the right aged care facility for a parent be a distressing time for families, both emotionally and financially. As costs for aged care facilities continue to rise, many individuals will need to consider what funding options are available to them, that will ensure their loved ones are looked after.

The average refundable accommodation payment (RAD) is $350,000. However, depending on the aged care facility and its location, this can exceed $500,000, and sometimes cost more than $1 million.

The RAD can be paid in full, as a daily accommodation payment (DAP) or a combination of both. The RAD is the capital value of the room a resident occupies, and the DAP is the interest rate that is set by the government (which is currently 6.22 per cent).

Deciding how to fund a parent moving into an aged care facility is rarely straightforward, and at such an emotional time it is important to consider a range of options both from a financial and practical perspective. Here are three funding options, as well as the implications, for someone looking to enter residential aged care:

  1. Sell the family home
    Since the bulk of a family’s wealth is usually tied up in the family home, it is often the most obvious asset to sell to fund a RAD. The issue with this strategy is that there are often surplus funds after the RAD has been paid which need to be invested. But individuals can reduce the value of the surplus amount through various strategies.

One way of doing this may be to gift the money. Those who are on the age pension, however, would be restricted to the gifting rule limit of $10,000 per financial year or $30,000 over five years. Investing $12,250 in a funeral bond which is an exempt asset, or prepaying a funeral could also help. Holding an insurance bond within a family trust is another way of reducing assessable income.

  1. Keep the house, sell investments
    For some people, keeping the home and selling other assets is a better approach. For example, an individual who owns a house worth $800,000 and has $800,000 in cash/term deposits wants to move into an aged care facility that has a market price of $600,000.

If they keep the house and put $595,000 of the investments towards the RAD, they would only pay a DAP of 85c per day and receive $834 a fortnight of the age pension.

  1. Deduct the DAP from the RAD
    One of the payment options that aged care facilities offer is the ability to draw down on any deposit made. So if a resident pays part of the RAD, then they can pay the outstanding DAP from the RAD. This option may suit people who would face cash flow issues if they pay the RAD in full. Making payments towards the RAD can ease pressure on cash flow as the DAP is calculated at 6.22 per cent whereas a person’s investments may only be earning three per cent.

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