Law Talks Episode: Understanding the protected person rule in aged care

Robyn: Good morning and welcome to another edition of law talks here on 4CRB. Today we’re joined by Larisa Kapur an accredited aged care professional and senior associate at Attwood Marshall Lawyers. Thanks for being here today, Larisa.

Larisa: Thanks for having me.

Robyn: Well, today we’re talking about something called the protected person rule, the key concept that can affect anyone moving into aged care, or those who have a spouse or partner making that transition.

It’s a rule that many people haven’t heard of, but it can make a big difference when it comes to aged care costs and eligibility. Larisa, can you explain what the protected person rule is and why it’s so important to understand when someone is entering aged care?

Larisa: Absolutely. So, the protected person rule is a really important part of the aged care ‘means test’. It’s something that can have a huge impact on how much someone pays when they move into permanent residential aged care. 

So, when someone enters aged care, Centrelink, or Services Australia, will assess their income and assets and work out how much they’ll contribute towards the cost of care.

Now the family home is usually one of the most significant assets people have, and in many cases that home will count towards the means test or, you know, be sold to fund the care. But, and this is where the protected person rule comes in, if certain people are still living in the home, the value of the property can be exempt. That means it’s not included in the calculation of the aged care fees.

This can make a massive difference to how much someone pays, whether they qualify as a low means resident and what government support they’re going to receive.

Robyn: Who qualifies as a protected person? Could you perhaps explain the criteria for spouses, carers, close relatives and how their status might affect the means test?

Larisa: Well, there are three main categories of protected persons, let’s say. So, the spouse or partner of the person, aged care resident, if they’re still living in the home, the home is exempt indefinitely.

Robyn: Okay.

Larisa: So, a carer who’s been living in the home with the resident for at least two years before the person entered aged care and who is receiving Centrelink income support payments such as like a carer payment. This isn’t the carer allowance, which is slightly different.  You must be receiving a full income payment from Centrelink. A close relative which can include a child, sibling, grandchild or niece or nephew who has lived in the home for at least five years and also receives a qualifying income support payment like let’s say, disability support or job seeker or something.

And as long as one of these protected persons continue to live in the home and remains in the, on that, income support, the property is exempt from the ‘means test’.

Robyn: Okay, and if there’s no protected person.

Larisa: Well in that case, the exemption is only temporary. So the home is exempt for just two years from the date that the person enters into care.

After that it’s assessed at a cap value. So currently the cap value is about 197,000, give or take. It’s included in the ‘means test’. So that cap is indexed periodically, so it changes every six months or so.

Once that cap is counted, the resident may be expected to pay more in the means tested care fee and could also lose a part of their age pension, because now Centrelink is treating them as having that additional asset.

Robyn: And what are some common pitfalls or misunderstandings families face regarding the protected person rule?

Larisa: They’re quite a few.

Robyn: Yeah, I would imagine.

Larisa: One of the most common is that people assume the home is always exempt, especially if someone is still living in it. But that’s not the case. Unless the person living there meets the strict protected person criteria and receives that income support.

Robyn: That we just spoke about.

Larisa: We’ve all seen situations where families thought that just being the carer or being the person’s child was enough. But unless the person is also on a qualifying, you know Centrelink payment, the exemption doesn’t apply.

Another pitfall is around timing. For example, if a carer hasn’t been living in the home for a full two years, or a close relative hasn’t been there for five, then they don’t qualify even if they’ve moved in with good intentions to help.

So, a big one also, people forget that the exemption can be lost if the protected person moves out, stops receiving the income support payment, or passes away. That’s when the fees can suddenly increase, and families often aren’t prepared for that.

Robyn: So just to help our listeners understand this a little better, can you give us a real-world example of how this can play out?

Larisa: Oh certainly, so I had a case recently involving a woman, let’s just call her Margaret. She was moving into permanent care after a fall. So, her son, we’ll call him Ben, had moved into care for, he had moved into her house to care for her, but he had only been living there for about 18 months and was working full time. He wasn’t receiving any Centrelink support.

So, he thought that because he was living there and looking after her, the home would be exempt, but unfortunately, he didn’t qualify as a protected person under the rules.

So, two years after Margaret entered into care, a portion of the home’s value began counting towards the ‘means tested’ fees and that caused an unexpected increase in her care costs. So had they known earlier, they could have got more advice and looked at other options available to them.

Robyn: And better ways of protecting the home.

Larisa: Absolutely

Robyn: So, what if someone was a protected person, but later moves out or loses their Centrelink eligibility? What happens then?

Larisa: So that’s a really crucial question, because if the protected person moves out of the home or stops receiving the income support payment, then the exemption ends.

The home will then be counted as an asset in the aged care ‘means test’ moving forward. This can result in a higher means tested care fee which could go up by, you know, a significant amount a fortnight. Loss of age pension in some cases or a reduction since the person now has higher asset base. And of course it can cause serious financial stress, especially on the family relying on that home being exempt. Even temporary changes like someone moving out for a short time, or Centrelink suspending their payments, they can have unintended consequences.

Robyn: Yeah, there’s some certainly some scenarios there where there can be big impacts. How can families plan ahead to manage the impact of the protected person rule on both aged care and Centrelink assessments?

Larisa: Okay, well the key here is to plan early and get the right professional advice. So aged care and Centrelink rules are complex and interlinked and unfortunately, one small decision like someone moving out or changing the title of the home can have a ripple effect that affects fees, pension eligibility and estate planning.

So, some key steps families can take from this include; check the eligibility for the protected person rule early, ideally before moving into aged care if possible. Ensure the protected person is on a qualifying Centrelink payment and stays on it. Avoid changing the legal ownership of the home without advice. This can have serious consequences, including triggering gifting rules or even, you know, capital gains issues and things.

Make sure your enduring power of attorney documents are in place and valid, especially if decisions need to be made about the home later on. And work with both legal and financial advisors who specialise in aged care, not just general accountants or lawyers.

Robyn: With the upcoming Aged Care Act set to commence in November, are there anticipated changes to how the protected person rule will be applied or assessed?

Larisa: So generally, the protected person rule in aged care reforms is going to be remaining the same. If a spouse or a, you know, protected person lives in the family home, the property will continue to be exempt from financial assessments when determining the aged care costs so, yeah.

Robyn: Really it stays the same. Okay. And Larisa, final question for today, what are your top tips for families navigating aged care decisions and the protected person rule?

Larisa: Great question. So how about I give you 5 tips.

One, start planning early. Don’t wait until someone’s in hospital or urgently needs care. By then you may have fewer options available to you.

Number two, check who qualifies for a protected person, or if they do, don’t just assume make sure they meet the criteria. And I’d say get advice from a financial planner to assist with that.

Get your legal documents in order. So especially enduring powers of attorney and wills. These need to reflect your current wishes and circumstances.

Four, avoid DIY solutions. Don’t transfer property, add someone on title or restructure assets without actually getting proper advice if that’s you know something you’re contemplating doing.

And number five, work with aged care specialist. So, this is a very niche area. A financial advisor or solicitor who understands aged care, Centrelink and estate planning will help you avoid costly mistakes later.

Robyn: Yeah, Larisa, thanks for helping us navigate the legal and financial nuances of this rule. I’m sure it was very helpful for many of our listeners today.

Larisa: Thank you 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.