Aged Care Strategies

Accommodation Bond

An accommodation bond is an amount you may be asked to pay when you enter low level care (or can, as in your case, be asked even though you are in high level care) or an extra service facility. This bond is like an interest free loan to the aged care facility and by law it must be used by the home to improve building standards, and the quality of aged care services provided.

The bond can only be charged by an aged care facility that is, certified and meets the minimum building and care standards. There is no fixed amount for the bond. The amount of bond is to be agreed between you and the provider. Bonds can vary between residents in aged care facilities as well as between facilities in the same locality.

The bond can be paid as a lump sum, periodic (fortnightly or monthly) payment; or a combination of lump sum and periodic payments.

If the periodic payment option is chosen, the aged care facility is allowed to charge an interest rate on the amount of the bond outstanding, depending on the bond agreement. The interest rate is set by the Federal Government. The maximum permissible interest rate is currently 7.24% pa for residents entering care between 1 January and 31 March 2013.

The interest amount is charged to the client on a monthly basis. The Age Care facility’s agreement will specify the periodic bond (ie. the remaining $1,000) and interest payment which will be paid by direct debit.

Government regulations have been amended to make the value of an accommodation bond exempt from assessment under the Centrelink means testing process, which will assist you in maximising your entitlements. This ensures that having a bulk of your combined assets tied up in an accommodation bond will not have a detrimental effect on your ongoing pension payments.

Retention of Bonds – the nursing home may deduct from a resident’s accommodation bond during a period of up to five years from the day on which the care recipient enters the care facility. The maximum retention amount is regulated by Government and is indexed each 1 July. For bonds over $38,760, the maximum retention amount is $3,876 per annum or $323 per month.

Retaining the Family Home and Renting it Out

As mentioned previously, you are able to pay the bond in instalments, and there are advantages in not paying the bond in full.

If, for example, you pay $399,000, (ie. $1,000 still to pay) not only is the bond an exempt asset for Centrelink purposes, but the family home also then becomes an exempt asset and any rental income, exempt income.

Note that home rental income is taxable.

Age Care Fees – Daily Care Fees

Daily care fees comprise a basic daily care fee and an income tested daily care fee (ITF).

These fees are a contribution to the cost of your care. You may be asked to pay the income-tested fee if you are not in receipt of a full means-tested pension. This fee will be paid directly to the aged care home as part of your care fee.

The basic daily care fee is set by government and is currently $43.22 or $15,775.30 pa (from 1 January 2013), and all aged care facility residents pay this fee.

The income tested fee is calculated at 5/12th of total assessable income over the income tested fee thresholds per fortnight. The income tested fee threshold is currently $23,194.60 per annum. This means you do not have to pay the income tested fee, if your assessable income for Age Care purposes is below this amount.

There are strategies to potentially reduce the income tested fee including:

  • investing in a Care Annuity
  • purchasing a funeral bond or pre-paid funeral plan
  • gifting assets

Care Annuity – This is an immediate annuity for people who have been approved by ACAT as needing low or high level care and who intend reside, or are already in, a care facility. The annuity provides a fixed earnings rate and regular payments for the rest of the resident’s life.

In reviewing your situation we determined that a Care Annuity was of no value to you.

Funeral Bonds or Pre-Paid Funerals – A funeral bond or pre-paid funeral plan (up to the value of $11,500) may be purchased to reduce the value of your assets, which in turn reduces the amount of deemed income.

Gifting Assets – Centrelink will allow a single person or couple to gift up to $10,000 per financial year up to a maximum of $30,000 over a rolling 5 year period, without it being assessed under the Assets test or included as a financial asset under Deeming for the Income test.

This information is of general nature only and is not intended as a personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser who will assist you.