Attwood Marshall Lawyers Wills and Estates Senior Associate and Accredited Aged Care Professional, Debbie Sage, discusses what families should be aware of, and how your estate plan may be impacted, when a loved one makes the transition to aged care.
Background
Transitioning to aged care is often an emotional and overwhelming time in someone’s life, not only for the person moving into care but also for the whole family unit. There are financial considerations that must be made, but also healthcare and living preferences to consider. It could be the case that an elderly couple is separated as one person has to enter aged care due to their declining health, or it may be the case that a single retiree can no longer remain independent at home and must consider what they need for the next stage in their life.
Although you may not always have the luxury of planning ahead in these instances, appropriate financial and legal advice is crucial when making the transition to aged care to ensure you can afford the chosen type of care, how to fund the care, and the impact that it may have on your estate plan so you can make an informed decision.
Aged care can be costly and there are various options that must be carefully considered to fully understand which option is best suited for the individual’s circumstances.
One of the most significant costs to facilitate when transitioning to aged care is the accommodation cost which can be paid as either a lump sum deposit (known as a refundable accommodation deposit (RAD) or a daily accommodation payment (DAP) or a combination of both.
From selling the family home or other assets to loaning money from family, there are various strategies to be considered for those who need to quickly find a way to facilitate the move.
Each strategy has its own benefits and consequences that should be considered. Whatever someone decides to do, there are safeguards that can be put in place to mitigate the impact transitioning to aged care may have on their estate plan and their family.
Challenges people face when a spouse moves into aged care
For elderly couples, each individual’s health can decline at different rates. This may mean that a spouse might need to move into aged care earlier than their partner. It’s not just the emotional turmoil this can cause, with couples being separated and having to live independently for the first time in years, but the financial implications this can also have.
Trying to decide whether to keep the family home in this scenario can be more complicated than in the case of an individual who lives alone and is transitioning to aged care.
When moving into an aged care facility, the resident must complete an income and assets test to determine their eligibility for government financial assistance.
It is important to note that the family home will not be counted as an asset in the income and assets test if the aged care resident’s spouse or other protected person still lives in the home.
Alternatively, if someone chooses to sell the family home to fund their way into care, then that money will be counted and considered an asset as part of the assessment.
When trying to determine whether both parties should move to a facility, where they can remain in the same location or live separately and have one party remain at home, it is best to get trusted advice to ensure the couple does not unnecessarily sell the family home and to help them understand the long-term consequences this may have on their cashflow, their assets, and their overall estate plan.
When family lends a helping hand
If a family member contributes to the Refundable Accommodation Deposit (RAD)
If a child or other family member contributes to the RAD payment for an aged care resident, it is important they understand the risks of doing so. In this scenario, a person receiving financial assistance from a relative to help them move into their preferred facility should structure their estate plan to ensure the payment is returned. It is imperative to note that if no specific agreement has been put in place to ensure the repayment of the loan, upon the aged care resident’s passing, the RAD will be paid into the deceased estate and not back to the child or family member who initially paid for it.
To avoid disputes from arising, the aged care resident should amend their Will after the RAD is paid to specify the repayment of this gift to the child who paid for it. Then the remaining balance of the estate can be distributed accordingly. Alternatively, the Will could have a distinct “equalisation clause” that directs the executor to consider repayment of the RAD to the relevant child when distributing the balance of the estate.
What happens if someone does not have a Will?
Under the varying State and Territory Succession Acts, some provisions impose a “statutory order” of inheritance when a person dies intestate (that is, without a Will or valid Will). For example, suppose an intestate person leaves no surviving spouse but leaves surviving children. In that case, their child/ren are entitled to the whole of the intestate estate and if there is more than one child, the entitlement is divided into equal shares.
If a parent wants to provide reimbursement to a child for any contribution that child has made to their aged care costs, ensuring they have a valid Will with the proper provisions to support the repayment can protect that child’s financial interests, and give peace of mind to the aged care resident that their wish to repay the loan will be fulfilled.
What if the Refundable Accommodation Deposit (RAD) was used to pay a Daily Accommodation Payment (DAP)?
If the RAD was part payment of the assessed RAD, and due to insufficient funds elsewhere, the RAD was being utilised to fund the ongoing payment of a DAP or other aged care costs as agreed to be deducted from the RAD by the provider, in this scenario, the amount ultimately paid to the deceased estate after the resident’s death will be less than what was initially paid (perhaps significantly less).
A person’s Will should make a gift back to the relevant child of the amount initially paid, rather than the amount received by the estate from the facility.
Potential challenges to the parent’s estate
It may be that there is a considerable risk of a challenge to the parent’s estate after their death, perhaps due to there being a blended family situation, worries that a surviving former spouse may endeavour to make a claim on the estate, or estranged children seeking further provision from the estate.
In circumstances where families have an elevated risk of a claim being made on an estate, it would be beneficial for a child lending money to their parent for the purpose of entering aged care to act as a bank. Rather than making a gift of the money needed to pay the RAD, the child could lend the required amount to the parent via a written loan agreement and procure a registered mortgage over the title to the family home or other asset for security. Using this approach, the child can ensure their security to obtain repayment of the loan before unsecured creditors or family provision claimants make a claim on the estate.
Suppose the parent did not own a home to provide security but has other personal assets (such as shares, bank accounts, cars, valuable artwork, etc.). In that case, the lending child may instead register a security interest over the assets on the Personal Property Securities Register (PPSR). The register is a national online register administered by the Australian Financial Security Authority under the Personal Property Securities Act 2009 (Cth).
Attwood Marshall Lawyers – helping clients through every stage of life
When it comes to transitioning to aged care, it is vital to have a plan that contemplates how to pay for the accommodation, and meet the ongoing costs, whilst also considering cash flow, tax, pension, and estate planning ramifications.
This can be complex, which is why there are financial planners and lawyers who have taken the necessary steps to achieve accreditation as Aged Care Professionals. Aged Care Professionals can provide personalised advice that will meet a client’s needs today and ensure their wishes for the future are also preserved.
Attwood Marshall Lawyers have helped hundreds of clients navigate the complex aged care industry and are one of the few law firms that can assist clients with their transition to care while at the same time balancing their estate planning objectives.
If you would like any further information on the impact transitioning to aged care can have on someone’s estate plan, or know someone who is looking for advice regarding service agreements, or getting their Will, Enduring Power of Attorney, or Advanced Health Care Directive documents updated, please contact our Wills and Estates and Aged Care Department Manager, Donna Tolley, on direct line 07 5506 8241, email dtolley@attwoodmarshall.com.au or free call 1800 621 071. We offer a free 30-minute initial telephone consultation to review someone’s estate plan and ensure they have covered all their bases and have the documentation in place to protect their estate and their family.
Read more:
Transitioning to aged care in 2022 and understanding the services available for older Australians
The Aged Care Crisis Continues: Mandatory vaccinations, staff shortages, and what has changed since the Royal Commission made its recommendations?
Planning for the future as you get older – Retirement Villages and Aged Care
