Budgeting

If a dependent or a spouse continues to live in the family home, you won’t be able to rely on the proceeds of a house sale to fund an accommodation bond and will have to look for funding elsewhere.

It may be that children can help pay the accommodation bond – with a view to recouping the money down the track either from the eventual sale of the home or the return of the bond.

Pensions safe

The good news is that children can make regular or irregular gifts of money to a parent on a pension without affecting their parent’s pension payments.

Louise Biti, director of Strategy Steps which specialises in financial planning strategies, says the proviso is that the money must be spent.

If the money is paid into a bank account and it sits there for longer than a fortnight, Centrelink needs to be advised of the change to the bank balance and the payments will be included as an assessable asset and subject to deeming. This can affect the pension.

Gift or loan?

Biti suggests that for estate planning and family equity purposes, a decision should be made on whether the payments from the children are gifts or loans.

Again, it makes no difference to the age pension but can make a difference if the child needs to be repaid before any inheritance is divided up. “If it is to be a loan, it might be worth getting some form of document in place – such as by a solicitor – which states it was a loan rather than a gift. That way the money would be repaid before the estate is paid,” says Biti.

Reverse mortgages

Another option is a reverse mortgage, where equity in the home is used as security against a loan that is repaid when the home is sold. Some equity could be released to pay the initial bond for one person and the house could later be sold to pay the accommodation bond for a second person.

Another equity release scheme is the Bendigo Bank Homesafe Debt Free Equity Release, where home owners receive a cash amount in exchange for a fixed percentage of the future sale proceeds of a home.

Time to talk

In cases where individuals can’t or won’t sell their home, sometimes it is possible to negotiate with the aged-care facility that they pay only a small portion of the bond and instead pay interest on the unpaid bond amount. The home may then be rented out to help fund the interest payments on the bond.

When the bond is calculated in this way, the value of the home is excluded for Centrelink purposes and the accommodation bond and the income-tested fee could be lower.

The maximum permissible interest rate on an unpaid bond is set by the government and is now 8.92 per cent.

Hold onto the home

Macquarie Private Wealth manager Brendan Ryan says there are good practical reasons that the sale of the home is not an automatic consideration when moving to an aged-care facility.

For example, the move into aged care may be seen as temporary and a return to the family residence might be an option.

And trying to sell a property during the disruption of a move into care can be challenging, so the best time to manage this might be later on.

“The current system allows the exemption of the family home from Centrelink assets assessment for two years from the time of entering aged care,” he says.

“This exemption can also extend indefinitely if the home is rented out in the case of an individual paying an accommodation charge. If the individual is in care and is paying part or all of an accommodation bond by periodic payment, the family home also continues to be exempt.”

But while keeping the house may be beneficial in terms of the Centrelink and income-tested fee outcomes, the overall cash flow outcome might not be practical.

iPac Financial Care adviser Paul Intagliata says some of the forgotten costs of keeping the home are maintenance and rates. If it is to be rented out, it may also need work done on it and someone will need to manage it as a rental property.

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