Key financial tips for aged care planning

Navigating the financial aspects of aged care can be overwhelming for families, especially during the emotional process of arranging care for a loved one. Making these important financial decisions requires informed guidance to ensure the best outcome for all involved. This article outlines key considerations and potential opportunities or pitfalls in aged care planning.

Here’s a closer look at some considerations for aged care planning

Enduring Power of Attorney and Enduring Power of Guardianship

When an individual enters residential aged care and loses the capacity to make informed decisions, the Enduring Power of Attorney can assist in financial decisions and handle the necessary forms for Services Australia. The Enduring Power of Guardianship supports medical decision-making.

Without an Enduring Power of Attorney and an Enduring Guardianship appointed, an application to the relevant guardianship board or tribunal may be necessary. For children of aging parents, now is the time to consider enduring powers of attorney, guardianship, and to discuss their wishes for future care.

Protected person status

A protected person living in the family home may remove the home from being an assessable asset. This may impact whether you are expected to pay a refundable accommodation deposit (RAD), or whether the government will step in to assist.

A protected person typically includes a spouse, dependent child, or, in some cases, another family member who may meet certain criteria. However, it’s not always straightforward to determine who qualifies, and having a family member living in your home doesn’t automatically grant protected person status.

For those with limited assets outside the family home, the exclusion of the family home may lead to accommodation costs being partly or fully covered by the government.

Family home and assets

Renting the home is a strategy that some take to generate income to pay for care fees, however, the impact on aged care fees as well as age pension entitlements need to be carefully assessed.

It is important to consider that if a family member contributes to paying a RAD, it increases the resident’s assessable asset pool and may inadvertently lead to higher aged care fees.

Self-managed super funds (SMSFs)

Succession planning within an SMSF is essential. If a trustee can no longer make informed decisions, an Enduring Power of Attorney may need to step in as trustee to ensure compliance and effective fund management.

Reviewing trust structures and trust deeds regularly can prevent costly amendments in future.

Social security

RADs are not assessable for the purposes of social security entitlements. A payment of a RAD may present an opportunity to access age pension entitlements, which may then be used to fund the cost of the basic daily care fee.

Couples timing entry into aged care

For couples entering aged care together, there may be an option to time each individual’s permanent entry date strategically, allowing one partner to be assessed as a government-supported resident, whilst the other enters care as a RAD paying resident. This creates a significant opportunity to save on the total care fees.

Planning for the surviving spouse

Couples are assessed on 50 per cent of combined assets and income. Once a spouse passes, the surviving spouse may inherit the other half of the asset, thereby increasing their assets and income. This may reduce age pension entitlements and increase contributions for care fees.

Updating Wills and considering asset transfers to the next generation, with the guidance of an estate planning lawyer, can preserve family interests and secure the best financial outcome for the surviving spouse.

Gifting assets to loved ones

Gifted assets may be assessable for five years unless certain criteria are met. Understanding the impact of gifting and options that may be available could prove to be valuable.

Every situation is different. Making well-informed financial decisions about aged care requires planning and insight. An engaged financial adviser can provide the guidance needed to secure a positive future for your loved ones, while protecting family assets and honouring estate intentions.

Preparing for the future

Navigating the financial aspects of aged care requires careful planning and informed decision-making. By understanding the key opportunities and pitfalls, families can better prepare for the future.

It's crucial to seek guidance from financial advisers and estate planning lawyers to ensure the best outcomes for your loved ones while protecting family assets and honouring estate intentions. Every situation is unique, and with the right support, families can make well-informed decisions that secure a positive future for their loved ones.

How BDO can help

If you would like to find out more about how you can plan for the future, for both you and your loved ones, our private wealth team can support you with tailored advice to your personal situation and values. Contact us today for a no-obligation chat to learn how we can support you.

Disclaimer:

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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