Do you need to sell the family home to pay for aged care?
Paying for aged care services can be financially debilitating. The simple fact of the matter is you shouldn’t have to sell your family home to pay for aged care however it is certainly becoming more common for the elderly to sell their home in order to subsidise their aged care costs.
Previously, retirees have been reluctant to sell their family home and would rather rent the property when they are forced to enter residential aged care. This preference is changing due to house prices increasing and age care refundable accommodation deposits (RAD) rising over time. Selling your home has become a more viable and popular option.
Increases to aged care fees
One of the big reasons more retirees are selling off their family home to pay aged care services is the fact that superannuation and other forms of savings are proving to be insufficient. This is largely because of higher aged care costs.
Since 1 January 2016, loopholes in the system have been closed which previously allowed retirees to collect rental income that would not count towards their aged care means tested fee. If you signed a contract with an aged care facility before 1 January 2016, then the changes will not affect you.
As of 1 January 2017 this rental income also counts towards the age pension income test. If you signed a contract with an aged care facility before 1 January 2017, then the changes will not affect you.
So, let’s break down the impact of the law changes that were introduced in 2016-17.
1. Rental income will no longer be exempted from means-testing used to calculate aged care costs. This means the means tested fee you pay will be higher.
2. Rental income will no longer be exempted from the age pension income test. This means the age pension you receive will be lower.
In the past, retirees would have rented out their home (usually with the help of a reverse mortgage) to meet their ongoing aged care payments. With the changes to the law, it is now less viable and access to additional capital may be required. Retirees now must think more closely about their financial position and whether they can reasonably sustain renting out the family home over the long term.
What are your solutions?
Getting in touch with the team at Sydney Aged Care Financial Advisers is always a great first step.
One of our Financial Planners will be able to organise an in-depth consultation to assess the various financial scenarios that are available to your family to help alleviate the financial strain of paying higher aged care fees.
If you have a comprehensive network of assets, then a financial compromise could be made (in the form of selling off other financial assets) to fund the Refundable Accommodation Deposit (RAD).
Be smart and seek help
You might feel like there is no other option but to simply sell your home however the Government and the age care facility can never force a resident to sell their home if the monthly fees are paid.
Every situation is unique, you won’t know for sure unless you get in touch with the professionals. Get in touch with someone from our team, who can help you plan, and ultimately, give you greater freedom of choice.
At the end of the day, the question as to whether you will need to sell the family home to pay for aged care will be based on your financial position at the time of entry. If you have enough assets that you can sell to offset your aged care payments, then retaining the family home shouldn’t be a problem.
It is important to understand, however, that recent changes to Australia’s legislation has meant that collecting rental income from your family home will affect your means-tested fee and age pension which may cost thousands of dollars each year).