Law Talks Episode: Aged Care Agreements and why legal advice matters

Robyn: Good morning and welcome to another edition of 4CRB law talks, and today we’re joined by Larisa Kapur, an Accredited Aged Care Professional and Senior Associate at Attwood Marshall Lawyers. Thanks for being here, Larisa.

Larisa: Thanks for having me.

Robyn: Well, today we’re talking about something that many Australian families will encounter at some point and that is aged care agreements. First off, Larisa, can you explain for our listeners what exactly is an aged care agreement and when are people usually asked to sign one?

Larisa: Yes, absolutely. So, an aged care agreement is essentially a legally binding contract between the resident or their legal representative and the aged care provider.

It sets out in writing exactly what care and services will be provided, the fees that will be charged and the legal rights and obligations of both parties.

Typically, people are asked to sign this agreement once they’ve accepted an offer for a place in a residential aged care facility. What’s very important to understand is that often, particularly if a bed becomes available suddenly, families feel pressured to sign quickly, sometimes within days, to secure the spot before it’s, you know, given away. But signing too quickly without fully understanding the agreement can actually lead to serious long-term consequences.

Robyn: Well, Larisa, I imagine some people think these particular contracts are just paperwork or a bit of red tape. Why is it so important to read these agreements carefully and even seek legal advice before signing one?

Larisa: That’s a great question. So many families do view these as simple formalities, but in reality, these agreements involve very significant financial commitments, sometimes running into hundreds of thousands of dollars.

So, the agreements often contain complex legal language, so important terms such as what happens if you leave, what fees are ongoing, how refunds work, can easily be misunderstood or even missed altogether. Legal advice helps, you know to clarify things like, if there are any issues on exit, whether daily charges continue after someone passes away, and how the fee increases might be applied.

Once the contract is signed, it’s very difficult to renegotiate, particularly if the resident later loses capacity, which is not uncommon in the aged care sector.

So, it’s much better to get good advice at the start rather than trying to fix the problem down the track.

Robyn: Can you talk us through the types of fees and charges people might find in these aged care agreements? Some of these might surprise families.

Larisa: Yes. Let’s just look ahead because we’re talking about the new reforms. I’ll just briefly cover that part. So, one of the Government’s main goals with these new reforms is to simplify and standardise these charges to make the system easier to understand.

So, currently there’s a basic care fee which you will still have which will remain a regulated amount, like continuing to be linked to the age pension. There’s the means tested care fee will also apply for those with higher means, but reforms aim to simplify how it’s calculated and to clearly disclose the total upfront. So, there’s accommodation payments, which are the RADs and the DAPs, they still will exist. The contract and payment terms. will be made more standardised and easier to compare across the providers, so I just want to say the RAD is essentially that accommodation payment, the lump sum that you pay.

Robyn: That’s the refundable accommodation.

Larisa: Currently it’s the refundable accommodation deposit. That’s due to change, but I’ll discuss that in a minute. And there’s also the daily accommodation payment. So, if you don’t pay the RAD, you’ve got the daily accommodation payment, which is essentially you’re paying rent.

Robyn: And that’s on top of your basic care fee?

Larisa: Yes, on top of your fees, yes. So, the reforms are going to introduce a new hotelling supplement, and this is a significant change because the supplement will cover hotel staff services like meals, cleaning, laundry, you know, power, maintenance, room related services and so forth.

The Government will regulate this fee, so there’s much greater consistency and predictability for families. There’s also going to be additional service fees. They’re still going to exist as they do now. For example, if you want a gourmet meal or you know, higher quality furnishings or a spa and wellness service. But providers will be required to give very clear information about what you’re paying for.

Now, exit fees and retention amounts will be abolished or heavily restricted, removing some of the financial uncertainty that exists under the current model. Fee increases will also be far more tightly regulated under the new rights-based systems. So, residents and families won’t face unexpected annual hikes that aren’t clearly agreed upon. And agree to upfront, sorry.

And the overall intention behind these reforms is to create a much more, you know, create much more transparency and consistency across the industry.

At the moment, many families struggle to compare apples with apples when choosing a facility. You might think you know two homes are charging similar fees, but when you dive into the contracts, the inclusions and exclusions can be widely different between the facilities.

So, what these changes, I mean, with these changes, people should be able to understand more easily what their loved one will receive, how much it will cost them, and what the rules are if their circumstances do change.

Robyn: Yeah, which does tend to happen. So, are there particular risks or obligations that people in Queensland should especially be aware of when it comes to these agreements?

Larisa: Yes, and one that I see regularly is a confusion of how that accommodation payments, so the RAD, is treated.

Many people don’t know whether it’s going to automatically form part of the deceased estate or if it’s to be refunded to the person or, you know, entity who originally paid it. And this is where family members get confused.

So, if a family member, say, adult child, paid the rent on behalf of their parent, that money will generally be refunded to the estate unless there is an agreement in place to specify other.

So, this can sometimes lead to unexpected disputes, especially if things haven’t been properly documented beforehand. It’s very important to coordinate aged care contracts with your estate planning as well as with, you know, any additional loan agreements that you might need. So that everyone’s interests are clearly and properly reflected in legal documents, saving the hassle of litigation or disputes later.

Robyn: Yeah correct. Larisa you’re mentioned the RAD, can you explain for our listeners how that works and how it’s going to work under the proposed changes?

Larisa: So currently the RAD Is fully refundable and Government guaranteed. So, what that means is if you pay a 550,000 RAD. When you leave the facility, or on your death, that will be refunded unless certain things were deducted out of it, if you ran out of money to pay your fees or something, but let’s just say it’s fully refundable. The new proposed act proposes that the RAD is no longer fully refundable, there will be a RAD retention rate. So yes, the current system the RAD is a refundable accommodation payment, and that will come back. So if you pay $550,000 for your RAD, that will come back once you leave the facility or on your death. 

The new legislation proposes that the RAD no longer be fully refundable, but that it have a retention rate. So, what that means is that potentially up to 10 per cent of the RAD will be retained by the facility. And this will be calculated based on when you first make that payment towards the RAD, they start that retention amount.

Robyn: Okay, Larisa, well, that seems like one area of the new reform that is quite different to the existing way and the model that we’re used to. What are some common mistakes or issues that you’ve seen when people sign aged care agreements without legal advice? Can you share a story with us?

Larisa: Absolutely. So often the facilities will require a guarantor.

They will ask for a guarantor to be named in the contracts, which means that this person is guaranteeing to be responsible for the aged care fees should the resident not be able to pay them.

A lot of people don’t realise that this is a legally binding document and signing as a guarantor they can come after you for the aged fees.

So, Robyn, you asked for an example. So, we had a client and I’ll just referred to this client as John. So, John Smith came in and he was the son and attorney for his mother and he had signed the guarantor clauses. Now the mother had, you know, a significant amount of money in the past, which was counted towards all her fees and fee structure. But she had gifted that without telling anybody and breached some of the Centrelink rules and so forth.

So, she actually didn’t have the money that she was supposed to have in her accounts. All of a sudden, he started, when the fees were defaulting, because she was assessed as a full fee-paying resident, the fees were defaulting and he was responsible for paying them and he couldn’t understand why. But because he had signed to be the guarantor, he was legally responsible to pay the fees that she couldn’t pay.

Robyn: Yeah, that highlights the reason why it is important to understand exactly what you’re signing. And finally for our listeners who may have a parent or loved one preparing to enter aged care, what’s your single most important piece of advice?

Larisa: Well, my key message would be, and it’s very simple, don’t rush.

I completely understand that when a place becomes available, families often feel that they have to move quickly. But these decisions have long term legal and financial consequences. So, you really want to think about them and get the advice that you need.

Also take the time to get proper legal advice as well as financial advice before signing anything, especially where a RAD or sale of a family home is involved. Financial advice is crucial for that.

And make sure your enduring power of attorney documents are valid, current and properly prepared, particularly if the person transitioning has capacity. I think they need to assess all their documents to make sure they’re in order.

Aged care isn’t just a health decision. It’s a major legal and financial event. Taking a little extra time upfront can save you enormous stress and costs for the family later on.

Robyn: Larisa, thanks for talking to us today about the importance of understanding aged care agreements before signing on the dotted line. As you say, they are legally binding and you’ve reminded us to seek legal advice and ensure you understand the fine print, as this can help avoid unexpected costs and confusion down the track. Thanks for joining us today.

Larisa: Thanks for having me.

Robyn: You’ve been listening to law talks here on 4CRB, which you can hear every Friday morning from 9 o’clock.