Your former home

Aged Care Your Former Home
When you move into aged care a major decision you will be faced with is what to do with your former home. Should you sell it or keep it?

This can be a hard decision as you and your family may have strong personal attachments to your home.

Your decision will have financial as well as emotional implications. It can impact how much Age Pension you receive as well as the daily care fees you pay. You should consider your options and how they will impact your total situation very carefully.

Financial planning advice can help you navigate through the decisions on your former home.

Does my former home affect my aged care fees?

When you move to residential aged care you need to pay an accommodation payment. This can be paid as either a refundable accommodation deposit (RAD) if or a daily accommodation payment (DAP).

How much you pay for accommodation will depend on the aged care service that you select and their published rates as well as the interest rate used to convert a RAD into a DAP which applies at the time you move into care. Refer to the page on Cost of aged care.

The ongoing care fees are based on formula that looks at the combination of assessable income and assessable assets. This is called a “means-tested amount” calculation. The assessment is made by either Department of Human Services (DHS) or Veterans’ Affairs (DVA).  What you do with your former home will impact this calculation.

When calculating how much you have in assets, your former home is included at a capped value of $162,087.20 unless one of the following people still lives in your home (in which case it is exempt):

your spouse
your dependent child (you have legal guardianship for a child under age 16 or full-time student under age 25)
your recognised carer who has lived in your home for at least two years and is eligible for income support from DHS or Veterans’ Affairs
your close relative who has lived in your home for at least five years and is eligible for income support from DHS or Veterans’ Affairs.

When calculating your assessable income, any rent you receive from your former home will be included as assessable income in the Centrelink/DVA income test. Different rules may apply if you entered aged care prior to 1 January 2017. Refer to the table below for Age Pension implications of renting out your family home (or the effect on any other means-tested payments.

If you sell your home this is likely to create surplus cash that you will need to invest. This leads to increased assessable income and assets and may increase your means-tested care fees.

Aged Care Lifetime Expectations

Tip

Advice on how to structure arrangements for your former home is important to ensure you maximise your financial position. The best advice opportunities exist if you have not yet made the move into aged care.

One key tip is:

  • If you are selling your home you may wish to consider fully paying the RAD (if possible) with the sale proceeds and seek advice on how to invest the surplus sale proceeds for any opportunities to reduce fees.

 

Do I have to sell my home to pay for a move to residential care?

If you don’t have the cash to pay the refundable accommodation deposit (RAD), selling your home to find the cash is one option – but it is not your only option. Three common options are listed in the diagram belowDo I have to sell my home to pay the bond for Aged Care           

How will the move out of my home affect my Age/Service Pension?

When you move out of your home you need to advise DHS/ Veterans’ Affairs of the change. You need to update your details again if you sell your home at a future time or find a tenant.

The decisions you make may impact how much pension you receive (if it is a means-tested pension). This is shown in the table below.

 

Aged care entry date/accommodation payment

Assets test implications for means-tested pension

Income test implications for means-tested payments

Entered permanent care on or after 1 January 2017

OR

Entered permanent care before 1 January 2017 and paid a refundable accommodation deposit (RAD) or accomodation bond in FULL

You will stay a homeowner for up to 2 years or until you sell the home.

During this time, the home is an exempt asset.

At the end of this period you will switch to non-homeowner and the home becomes an assessable asset (unless spouse still lives there).

Rent you receive is assessable income (after allowable tax deductions).

Entered permenant care BEFORE 1 January 2017 and part or all is paid as a daily acommodation deposit (DAP)/periodic payment/charge.

Home is rented

You will stay a homeowner and your home is an exempt asset indefinitely.

Rent you receive is exempt.

Home is not rented (or the tenant does not pay rent)

You will stay a homeowner for up to 2 years or until you sell the home.

During this time the home is an exempt asset.

At the end of this period you will switch to non-homeowner and the home becomes an assessable asset (unless spouse still lives there).

Not applicable

Note: the govenrment has proposed changes to these rules.
If passed, the home and rent exemptions may only apply to people who move into care before 1 January 2017.

This article is prepared by the strategy specialists at Aged Care Steps, a company supporting financial planning advisers who provide planning advice for aged care. To find a professional adviser who specialises in aged care advice go to www.agedcaresteps.com.au and click on the Find an Adviser link.

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