It’s challenging when our parents get old, become frail: trembling hands as they pass over the cup of tea; the garden and home becoming shabby as they are less able to look after it; hard of hearing; growing memory lapses.
They need increasing care and, despite protests to the contrary, one day they will not be able to look after themselves.
None of us want to face up to the underlying reality – it’s mum and dad we’re talking about. Yet inevitably we must. A sudden event – a fall and broken hip, a descent into Alzheimers, or a stroke – and things have to happen. Fast. Someone has to take charge of their affairs and work out what’s best for them.
It’s also the time when things can get very tricky. Brothers and sisters get involved and old sibling issues start to arise – which can be doubly compounded by the accompanying money issues. In my experience it is the possible sale of the family home that often triggers this. Some siblings want to keep the home believing it will go up in value; others might want to buy it or still others want to move in and live in it rent free.
This is a time when you might have to take a leadership role and find ways of working through these issues. To find out how you can best help. Work out what’s best for mum and dad; work out how to navigate the financial and care issues with brothers and sisters and develop practical answers.
Obtaining advice early and planning ahead, ideally before Aged Care is needed, will give a better outcome for all.
The important things to consider
There are a number of important considerations for you to bear in mind and they are driven by two key factors: Aged Care is complicated and expensive. There are decisions about the right type of aged care facility, meeting stringent entry criteria, the high costs associated with aged care, impacts on entitlements to government benefits and legal contracts to consider.
That is a lot to get your head around, especially if this is all new to you. All the while your parents are feeling scared and your siblings are swirling in the background, arguing about what’s best.
So many options – so few places
Your parents could go to a hostel, a nursing home, receive in-home support, or go into private care. Each has its own considerations and costs. The decision making is compounded by the scarcity of places.
The large ageing population is driving up demand and yet the high degree of government regulation means there is significant under-investment in the sector. This often means long waiting lists and rigorous selection criteria.
Typically it costs hundreds of thousands of dollars just to enter into an aged care facility. Then there are living costs at $47.15 per day per resident. This does not cover any additional care costs or fees for supplementary services. That’s a considerable amount of money and you will need to carefully think through how to finance it.
As of 20 September 2014, rule changes have meant a much more rigorous application of means testing of both income and assets for people seeking government benefits in aged care. This added another layer of complexity to the cost calculations associated with entering and staying in an aged care facility.
Selling the family home
Often this is the largest single asset older Australians own and it is tempting to think of selling it to help pay for aged care costs. Not only is this an emotionally vexing decision, with attendant issues around wills and estates, but it can often take a long time. The house may need sprucing up and family relics and heirlooms re-located.
On top of that your parents may lose part or all of their government benefits and be subject to higher aged care fees.
Loss of government benefits
For many older Australians the government provides a large part of their income through the aged pension with additional support through health and travel subsidies. A change in their asset structure, such as selling the family home (or shares), would have a material impact on these.
All this gathering of information, evaluating and deciding, take time. In my experience a quick resolution is six months – and it can often take longer. In the meantime your incapacitated parent is in need of daily care. This is when a well-considered plan with appropriate financial actions in place can alleviate a lot of stress.
Strategies to reduce the cost – and retain as much of your parent’s wealth as possible
Outlined below are two effective options to consider in your decision making.
Keep the family home
By keeping the family home you may minimise any loss of benefits and retain the emotional status quo attached to the house. It provides an emotional security blanket to all concerned.
Instead the home could be rented out, a reverse mortgage taken out, your parents could enter into a Centrelink Pensions Loan Scheme or negotiate to pay the aged care entry fee in instalments.
If you are thinking of renting out the house, it will realistically need updating as the kitchen, bathrooms and carpets are probably 20 years old or more. That could easily cost $100,000.
While the individual circumstances of your parents are unique, the common questions you need to think about are:
- Will renting out the family home fully or partially offset the outlay needed to refurbish it?
- Who will fund the costs for making the house rentable and how?
- If you choose to pay for the refurbishments, how do you protect your money?
- How do you organise family trusts, loans and wills so that you are not needlessly disadvantaged at estate settlement?
- How will your family manage if something happens to your mum or dad very soon after entering Aged Care?
- How do you ensure the decisions are legally sound?
All are important considerations and informed advice can be particularly useful here.
Insurance bonds and annuities
If you have decided to sell the family home, consider investing any remaining proceeds from its sale into an insurance bond or an annuity. Insurance bonds and annuities are investments offered by Life Insurance companies which may help maximise government benefits and minimise the aged care fees.
The decisions involved in moving your parents into aged care can be emotionally stressful. Worries about how they are feeling and coping, navigating your siblings and their issues, deciphering all the financial options and their implications are all compounded by the often sudden need to do something.
For some families the decision to sell the home is a straight forward one – for others, the process is slow and troubled. Whichever is your experience we can assist you by putting the appropriate structures, agreements and funding in place.
Seeking advice early and planning ahead will reduce the stresses involved and help you to make better informed decisions.