Understanding the responsibilities of being a guarantor in aged care

Attwood Marshall Lawyers Wills and Estates Associate and Accredited Aged Care Professional Larisa Kapur joins Robyn Hyland on Radio 4CRB to talk about what people should know before becoming a guarantor on an aged care agreement for a loved one who may be moving into aged care.

As the transition to aged care becomes increasingly prevalent for our elderly loved ones, aged care providers commonly request incoming residents to have someone act and sign as a “guarantor” on their agreements. Being a guarantor in any legal agreement is a very onerous responsibility – you effectively step into the shoes of the person in care and ‘guarantee’ any payments that are required to be made to the nursing home or care facility, as well as any other contractual obligations required under the agreement. Many family members agree to be a guarantor without fully understanding their legal obligations. It is crucial that the person going into care and the proposed guarantor receive legal advice from lawyers experienced in this area of law BEFORE signing any agreement.

While not mandatory in all facilities, this arrangement is becoming a standard expectation.

As more individuals transition to aged care, understanding the implications and responsibilities of being a guarantor is essential.

The guarantor acts as a financial backer, agreeing to cover specific fees if the resident cannot meet their financial obligations. Additionally, they provide a guarantee for the costs of any damages the resident may cause while in care.

This measure is designed to protect aged care facilities if the resident’s financial circumstances change unexpectedly, and they can no longer pay their fees.

It’s crucial to note that each resident undergoes a rigorous means assessment before entering the facility, determining their ability to afford aged care fees based on their financial status. Thus, if fees remain unpaid and the resident falls into arrears, it raises questions about the management of funds, often by the appointed attorney. Having a guarantor nominated gives the aged care facility security and recourse to recover unpaid fees if there is a default or the resident run out of funds.

In instances where elderly individuals are unable to meet their financial obligations, aged care providers need someone to hold them accountable, typically the individual managing the resident’s funds, named as the guarantor. Proper management of assets and finances should prevent these issues, as fees are means-tested. However, cases arise where adult children, usually acting as power of attorney, mismanage or deplete their parent’s funds, leading to financial strain.

Who can act as a guarantor on aged care agreements?

When stepping up as a guarantor for aged care agreements, the responsibility typically falls on either the designated Power of Attorney or family members.

In most cases, the individual appointed as the resident’s Power of Attorney assumes this role. This makes sense since the Power of Attorney manages the resident’s finances, ensuring that fees are covered promptly and without complications.

More often than not, it’s an adult child of the resident who takes on this responsibility. Given their familial connection and often their involvement in overseeing their parent’s affairs, they are well-positioned to fulfil the duties of a guarantor effectively.

Are guarantees in aged care legally enforceable?

Similar to any contract or agreement, if you possess the capacity to understand the terms and are of legal age, signing as a guarantor in an aged care agreement binds you to its terms.

It’s not uncommon to hear cases where individuals, having signed as guarantors, later attempt to argue against the legality of their commitment when a facility comes knocking for fee payment. The guarantor claims they felt pressured to sign, fearing that without their guarantee, their elderly relative wouldn’t gain admission to the facility.

However, as an adult with capacity, if you understand the nature and effect of what you are signing and sign as a guarantor, you cannot argue it was under duress simply because you were desperate to get your elderly relative into that facility. Desperation to secure placement for a loved one does not nullify the legal obligation undertaken.

Once you’ve signed, you’re bound by the terms of the agreement.

Although the Aged Care Act does not mandate having a guarantor, many facilities include this requirement in their admission process.

Where a power of attorney or family member refuses to provide a guarantee, it is perfectly legal for the facility to decline to offer a room or placement for the resident.

Guarantor for aged care vs guarantor for a home loan: what’s the difference?

Becoming a guarantor in an aged care contract differs from acting as a guarantor for a home loan for several reasons.

A few of the fundamental differences are:

• The nature of the agreement: When you go guarantor on an aged care contract, you’re typically assuming financial responsibility for the fees associated with the resident’s care, including accommodation costs and ongoing care expenses. Keep in mind that the resident’s fees have been calculated and determined based on their means and affordability – the resident should be able to afford these fees with their income and assets. On the other hand, going guarantor on a home loan entail taking financial responsibility for the repayment of the home loan if the primary borrower defaults.
• Type of facility and timing: The type of facility often determines the necessity for a guarantor in aged care contracts, commonly associated with residential aged care facilities.  
• Legal and financial obligations: Guarantors in aged care contracts may have specific legal and financial obligations outlined in the agreement. This may include details about the duration of the guarantee and the specific fees covered. Conversely, guarantors on home loans are subject to the terms and conditions of the loan agreement, potentially using the guarantor’s assets for security in case of default.
• Regulatory framework: aged care contracts are subject to regulations and standards specific to the aged care industry, which may differ from those governing home loans.

Given these differences, it’s crucial for anyone considering becoming a guarantor on an aged care contract to fully understand the terms and implications of the agreement and to seek advice before making such commitments.

Understanding the fees charged by aged care providers: don’t get caught out

Often, it is the case that for means-tested fees, the resident is charged up to 85 per cent of their pension to cover the cost. However, a common oversight is the extra services are charges that apply on top of these fees.

This is where people often get caught out, and when the resident can’t meet the additional fees by way of their pension, the guarantor comes asking why the fees are 100 per cent of the pension or more.

It often comes down to additional service fees tacked on that the resident overlooked; for example, Netflix may be provided to all residents and charged at a specific rate. Or perhaps the resident gets their hair done by a visiting hairdresser, who is charged a certain rate each fortnight. Whatever it may be, people often expect the fees they see on the agreement to be all-inclusive, but that is often not the case and people can be caught off guard when they need to pay the extra expenses.

Can a guarantor’s assets be at risk if the resident defaults on their payments?

There are many complexities surrounding aged care agreements and the role of guarantors. The specific terms of the agreement and the extent of the guarantor’s liability can vary depending on various factors, including the type of agreement, the terms negotiated between the parties involved, and the legal framework governing guarantor arrangements.

In many cases, a guarantor’s liability may be limited to the specific financial obligations outlined in the agreement. If the resident defaults on these payments, the facility may have recourse to recover the outstanding amounts from the guarantor, potentially through legal action. If it gets to this stage, then, in some cases, a guarantor’s assets may be at risk.

Can a guarantor withdraw support after the resident has moved into the facility, and what are the implications if they do?

The ability to withdraw support may depend on the terms of the contract. In most cases, if you have signed the agreement, you will be bound by it. The process and implications should be clearly outlined in the agreement, and it is always advisable to seek legal advice before making such decisions.

Sometimes, the agreement will allow for the appointment and replacement of a guarantor with consent from all parties. However, if there is nothing in the agreement on this, then it is suggested that you seek legal advice or contact the aged care facility and liaise with them to explore alternative options. 

Attwood Marshall Lawyers – trusted advice when transitioning to aged care

With in-depth knowledge of the aged care sector, we are one of the few law firms boasting two Accredited Aged Care Professionals who are ready to provide up-to-date and trusted advice to the elderly and their family when making important decisions about aged care.

Transitioning to aged care involves complex financial and legal considerations. We want to guide clients through the complexities of the aged care sector, offering insights into the many options available and tapping the resources of our other specialist departments that can help with any overlapping matters that arise.

To discuss your aged care needs, please contact our Aged Care and Wills and Estates Department Manager, Donna Tolley, on direct line 07 5506 8241, email dtolley@attwoodmarshall.com.au or free call 1800 621 071.