James Wrigley, Senior Financial Advisor at First Financial, answers money questions every Wednesday.
Dear James,
A friend told me that if I need to spend my final years in a nursing home, I will have to sell my house to pay a huge deposit for a room (something like $650,000 in today’s money) and that when I die, the $650,000 will be returned. whoever I designate in my will.
Is this true?
I’m 55 years old and feel like I’ve spent my entire adult life working to pay for my house. You should have paid it off when you’re 65. It is currently worth around $950,000.
I am a single mother with a daughter. I always planned to give him my house when I died. But now I’m worried that I won’t get it because I’ll have to sell it to pay for a horrible room in a nursing home.
Short of resorting to euthanasia, is there any way to avoid having to sell my house to finance my later years?
Thanks for your time.
Elena.
Ellen worries that she will have to sell her house, which she always planned to give to her daughter, to finance a room in a nursing home (file image above)
Hello Elena,
What your friend is talking about is called a refundable accommodation deposit (or RAD) for a room in a senior care facility. This is not the only way to pay for a room.
Let me summarize how the residential aged care system currently works. Please note that there will be some changes coming over the next year and certainly when you need senior care (which is usually people in their 80s) the rules may be completely different. So I wouldn’t worry too much about that now, since you’re only 55 years old.
First, an evaluation of your financial means is carried out. If you own your own home and no one known as a “protected person” will occupy your home after you move into the senior care facility, you will have to pay the advertised amount for a room (explained later). If you are considered low-income, you will pay a reduced amount for the senior room.
Currently, you will pay fees for residential aged care in three areas:
1. Room Cost: The simplest way to think about this is that you can “buy” or “rent” your right to occupy a room for as long as you decide to stay there. If you go to ‘buy’ the room, you pay the advertised price (sometimes negotiable). Depending on where you go, this could cost anywhere from $400,000 to over $1 million. If you pay that cost in full through a RAD, the entire RAD will be refunded to you when you leave, or to your estate if you die.
On the other hand, if you choose to “rent” the room, you will pay an interest cost (currently 8.38 percent) on the outstanding price of the room. This interest rate is fixed on the day you enter and does not rise or fall with movements in other interest rates.
2. Cost of care: everyone pays a basic daily rate that is set at 85 percent of the single old-age pension. This increases as the old-age pension increases over time. Currently, this is $63.57 per day and covers all of your meals and 24-hour care.
In addition to the basic daily rate, you may also be required to pay a resource-based care fee. The more financial means you have, the higher this rate will be. There are annual and lifetime limits on the means tested fee. So if you have the means to pay one of these fees and reside in a senior care facility long enough, you will eventually stop doing so. At your highest payment rate, you’ll reach the lifetime limit after about 3.5 years.
3. Additional Services Fee: This pays for ‘additional services’. Some facilities charge a fee here and some do not. This is something you should check as your annual costs may increase significantly as a result of this fee.
This is a specialized area of financial advice; If you or someone you know is about to enter senior care, I highly recommend seeking the services of a financial advisor to help you. You may be able to find a solution that allows you to provide the care she needs while still achieving her desire to leave the house for her daughter.
I hope this helps.
Jaime
Send your questions to James at thewealthbuilder@dailymail.com.au
James Wrigley is a representative of First Financial PTY LTD ABN 15 167 177 817 AFSL 481098
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