Age affects the very best of us and one day your loved ones may require a level of care that you and your family are unable to provide. When this time comes, moving that loved one into an aged care facility may become our only option.
Hard enough as a decision on its own, we then have to consider how the cost of the care will be covered and how existing assets will be dealt with.
Retirement villages accommodation bonds can cost anywhere between $350 000 to just over $2 million; and which facility to use is by no means a numbers game. You want the best for your loved one; and it can be difficult to find a facility considering other applicants and the level of care required before we even think about the cost.
One option that may present itself is to sell your loved ones home to cover the cost of the care facility.
If your loved one owns their own home then it is counted as an asset under aged care assessment; if they sell their home then the money from the sale is assessed according to how it is used.
Usually when someone sells their home when moving into an aged care facility they simply place the money in the bank. The problem with this is that it will affect their pension payments. This is an issue when we think about all the everyday costs that come with living in an aged care facility; maintenance fees, cleaning, food, entertainment, the list is really endless.
And what if further down the track your loved one is required to move to a facility that will provide a greater level of care? Aged care facilities can retain 10% of the bond paid each year for a maximum of five years. A facility that provides a higher level of care can cost even more then the first one, once the amount of the bond that has been retained is subtracted from the original bond; paying another bond may be out of reach.
And if you are lucky enough to get approved for a loan to cover it, you then have to pay interest on the loan out of your pension! And will have to sell down assets to contribute to covering the bond and reduce the effect on your pension.
But what if they don’t want to sell the family home? What if they want to leave it to you or another family member?
In all the emotion surrounding the circumstances, your loved one may forget, or not want to accept that when they pass on you will more then likely sell their home to help with your own mortgage, or pay for school fees etc. Or you may just very simply not want the added stress and responsibility of owning a second home.
And again, if they don’t want to sell, we are brought back to the big question of how will they pay for the home?
Aged care facilities usually offer an option to pay the bond periodically, but if this option is taken then interest has to be paid at a maximum rate of 7.24%. Remember now that if your loved one owns their home it will be counted as an asset and will be reducing their pension payments!
Retirement certainly isn’t all golf, tennis and tea for those planning it, if you or one of your loved ones is reaching the stage where an aged care facility is looking appealing, come in and have a chat to Geoff and Trung about your options and financing your decision.