James Wrigley, chief financial advisor at First Financial, answers questions about money every Wednesday.
Dear James,
A friend told me that if I have to spend my last years in a nursing home, I will have to sell my house to pay a huge deposit for a room – something like $650,000 in today’s money – and that when I die, the 650,000 dollar will be returned to whoever I nominate in my will.
Is this true?
I’m 55 and feel like I’ve worked my entire adult life to pay off my house. I should have it paid off by the time I’m 65. Currently it is worth about $950,000.
I am a single mother with one daughter. I always planned to give her my house when I died. But now I’m afraid she won’t get it because I’ll have to sell it to pay for a horrible room in a nursing home somewhere.
Short of euthanasia, is there any way I can avoid having to sell my house to finance my final years?
Thank you for your time.
Ellen.
Ellen fears she will have to sell her house – which she always wanted to give to her daughter – to finance a room in a nursing home (image above)
Hello Ellen,
What your friend is talking about is called a refundable accommodation deposit (or RAD) for a room in an aged care facility. This is not the only way to pay for a room.
Let me outline how the residential aged care system currently works. Keep in mind that there will be some changes over the next year and certainly by the time you need elderly care (usually people in their 80s), the rules may be completely different. So I wouldn’t worry about it too much at this point since you’re only 55.
First, an assessment of your financial capacity is carried out. If you own your own home and no one known as a ‘protected person’ will occupy your home after you move into aged care, you will have to pay the advertised amount for a room (explained more below). If you are considered a ‘low-income’ person, you will pay a lower amount for the elderly care room.
You currently pay reimbursements for residential elderly care in three areas:
1. Room costs – the easiest way to think about this is that you can ‘buy’ or ‘rent’ your right to occupy a room, as long as you decide to stay there. If you ‘buy’ the room, you pay the advertised (sometimes negotiable) price. Depending on where you go, this could be around $400,000 to north of $1 million. If you pay those costs in full through a RAD, the full RAD will then be refunded to you on your departure, or to your estate if you die.
On the other hand, if you choose to ‘rent’ the room, you will pay interest charges (currently 8.38 percent) on the outstanding room rate. This interest rate is fixed on the day you enter and does not go up or down with movements in other interest rates.
2. Healthcare costs – everyone pays a basic daily amount set at 85 percent of the single old-age pension. This increases as the old age pension increases over time. Currently this is $63.57 per day and covers all your meals and 24-hour care.
In addition to the basic daily rate, you may also be required to pay an income-related care allowance. The more financial resources you have, the higher this compensation. There are both annual and lifelong ceilings on the income-related compensation. So if you have the means to pay any of these fees and you stay in aged care long enough, they will eventually stop. At the highest payment rate, you will reach the lifetime limit after approximately 3.5 years.
3. Extra Services Charges – This pays for ‘extra services’. Some facilities charge a fee here, others do not. This is something you should check as this fee can significantly increase your annual costs.
This is a specialized area of financial advice. If you or someone you know is about to enter the elderly care field, I highly recommend seeking the help of a financial advisor. You may be able to come up with a solution that provides the care you need while fulfilling your desire to leave your home for your daughter.
I hope this helps.
James
Send your questions to James thewealthbuilder@dailymail.com.au
James Wrigley is a representative of First Financial PTY LTD ABN 15 167 177 817 AFSL 481098
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