Budgeting

Aged care is one of those taboo dinner table topics for many households. If it is spoken about, it’s often in jest and along the lines of “if I can’t look after myself, then just put me in that nice nursing home overlooking the ocean”.

The reality is that few of us know if and when we – or our parents – might need to move into an aged-care facility. For many people, it is an accident or dementia-related illness that necessitates constant professional care, so the choice of facility may not be an option.

That makes the financial planning for aged care difficult for individuals and their families.

Aged care is a health-driven decision that is often made by a third party such as someone with power of attorney or a family member, according to iPac Financial Care adviser Paul Intagliata.

Little notice

For something that could cost hundreds of thousands of dollars, Intagliata says, many people get less than a week to think it through.

That makes having an up-to-date enduring power of attorney and enduring power of guardianship a natural starting point for at least discussing how individuals may want their property and financial affairs dealt with, as well as the sort of lifestyle and medical treatment they should receive if they lose their mental capacities.

Both are legal agreements that enable an individual to appoint a trusted person – or persons – to make decisions on their behalf.

Since the agreements have to be made when individuals are of sound mind, it means they have to think about how things may be handled and by whom.

Needs v assets

How people intend to fund any move into aged care will depend on their care needs, as well as their financial assets. Generally, if you own a home that you are prepared to sell to move into an aged-care facility, you will have enough to cover the cost, and more.

Emotional attachment to a home and other reasons such as having a spouse still living there mean this is not always possible, so other funds sources such as superannuation, investments and family members have to be considered.

Big decision

Woodbury Financial Services senior adviser Dominic Cogger says one of the biggest decisions families face when a relative moves into aged care is what to do with the family home.

“In some cases this has been a generational home with highly emotional ties to the owner,” Cogger says. “[Questions arise such as] should they keep it and use other assets to meet their aged-care costs and living expenses, or keep it and rent it, or sell it and invest the proceeds.”

In making the decision, you need to understand the interaction between the aged care and social security rules, capital gains tax implications, the income that can be generated from other investments, the value of the home, and the costs in preparing the home for rental use.

Time to talk

Then there are the issues around inheritance and intergenerational wealth transfers, which may well mean it’s time to hold long-overdue family discussions.

Aged-care specialist and director of Financial Freedom Solutions Val Nigol says he sometimes has to warn clients about giving away savings to children or grandchildren too soon.

“I have a look at the client’s assets and assume they will need several hundred thousand dollars to pay an accommodation bond to enter care. If they don’t have the capacity to give and still retain enough to fund potential aged-care costs, I suggest that they hold back a bit,” he says.

Something in reserve

“I ask them quite directly how they would feel about having to sell their home to move into aged care. If they are OK with this, then it is not as critical. If they want to keep their home or can’t sell it for other reasons, then I point out they should keep a reserve just in case they need it for aged care or other unforeseen medical reasons,” says Nigol.

When individuals don’t own their own homes and never have, their financial means are limited and the government will help.

“The maximum you can be asked to pay is 84 per cent of the Centrelink single age pension and nothing more. The government subsidises the rest. Basic government policy is that no one will be denied aged care if they need it,” says Nigol.

How to know how much aged care will cost

How to budget for aged care

How to use a home to finance aged care

Where to find financial help for aged care

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