Moving into residential aged care can trigger a range of emotions, particularly when decisions need to be made about the family home. The home is a major financial asset, and many people believe it should either be kept in the family, or its value preserved for future generations.

Whether the home must be sold to pay for aged care depends on several factors, including who is living in it and what other financial resources or options are available to cover the potential cost of care.

It also makes a difference if the person moving into care receives Centrelink or Department of Veterans Affairs (DVA) payments.

Cost of care

Services Australia’s residential aged care department determines the cost of aged care based on a person’s income and assets. ⁱ

For aged care fee purposes, the home is exempt from the cost of care calculation if a “protected person” is living in it when you move into care.

A “protected person” is defined as either a spouse (including de facto), a dependent child or student, a close relative who has lived with the aged care resident for at least five years and is entitled to Centrelink income support, or a residential carer who has lived with the aged care resident for at least two years and is eligible for Centrelink income support. ⁱⁱ

Capped home value

If the home is not exempt, the value of the home is capped at the current indexed rate of $201,231 per person, for the calculation of aged care fees. ⁱⁱⁱ

Once your assessed assets exceed $201,231, Services Australia determines that you will pay accommodation costs at the rate agreed upon with the aged care home. This is known as the advertised Refundable Accommodation Deposit (RAD) or the equivalent daily interest rate, known as the Daily Accommodation Payment (DAP). There’s also the option to pay a combination of both the lump sum RAD and DAP.

The average RAD is $450,000, but just as property values vary significantly, so too do RADs, particularly in upmarket inner-city suburbs. Based on the current interest rate of 8.36% (effective from 1 July 2024), the equivalent DAP for a $450,000 RAD is $103.07 per day ($37,620 per year).

Depending on your combined assessable income and assets, you may also be required to pay a daily means-tested care fee. This means-tested care fee has an annual cap of $33,309 (indexed) and a lifetime cap of $79,942 (indexed).

This fee is in addition to the basic daily fee of $61.96 and any additional or extra service fees charged by your chosen accommodation provider.

There is no requirement to sell the home to pay these potentially substantial costs, but if it is a major asset that will be left empty, selling it may be your preferred choice.

Other options to cover the costs may include using your other assets or income, renting the home (though this can increase the means-tested care fee and reduce the age pension), borrowing against the property, or asking family to cover the costs.

Centrelink pension rules

For someone receiving Centrelink or DVA benefits, there is an important two-year rule if the property is kept.

The home is exempt for pension purposes if occupied by a spouse; otherwise, it is only exempt for up to two years or until sold, whichever comes first.

If you don’t have a spouse living in your home and you move into aged care, then after two years, your property’s full value will be counted towards the age pension calculation. This could result in the loss of the pension.

However, money paid towards the RAD, including proceeds from the sale of a house, is exempt from age pension calculations.

Refundable deposit

As the name suggests, the RAD is fully refundable when a person leaves aged care. The full amount will ultimately be paid to the estate and distributed according to the person’s will.

We are here to help, every step of the way

The decisions around whether to sell your home to pay for aged care can often create stress both financially and emotionally for residents and their loved ones. Our advisers can help by referring you to Alteris Financial Group’s Lifestyle and Care Team. Alteris’ specialist division of financial advisers are accredited in aged care advice and can talk you through all options and explain the various financial considerations. They can also provide full support with ensuring the fees and pension are correct by working directly with your accommodation provider, Services Australia and the relevant government departments.

 

Sources

i https://www.myagedcare.gov.au/understanding-aged-care-home-accommodation-costs

ii https://www.myagedcare.gov.au/income-and-means-assessments

iii https://www.myagedcare.gov.au/income-and-means-assessments