An aged care focus
In the 2017/18 financial year, the average age of admissions to permanent residential aged care was 82 years for men and 84.5 years for women (Department of Health, 2017-18 Report on the operation of the Aged Care Act 1997, p. 10). With people entering residential aged care at a later stage in life and with an average stay of 2.97 years (Aged Care Financing Authority 2019 Annual Report on Funding and Financing of the Aged Care Sector, p. 42), estate planning and postdeath issues are often at the forefront of advice considerations for aged care clients.
When a person is a member of a couple and in aged care, the financial impact caused by the death of their spouse could have significant ramifications on their aged care fees and Age Pension. If the surviving spouse inherits or becomes the sole owner of assets, this can result in a double impact - increased assets and income which may result in higher aged care fees as well as lower Age Pension.
Approximately 50% of aged care residents suffer from dementia (Department of Health, 2017-18 Report on the operation of the Aged Care Act 1997, p. 7) and with loss of mental capacity, the opportunities to restructure affairs may be limited. With planning and appropriate legal advice, when suitable to a client's goals and objectives, diverting assets to someone other than the surviving spouse may assist with minimising aged care fees and maximising Age Pension.
Using a case study, this article discusses the impact caused by the death of a member of a couple on a surviving spouse's aged care fees and Age Pension and highlights the use of potential strategies which could assist with maximising financial outcomes.
John, aged 85, entered aged care in October 2018. Separated from John, his wife Nancy, aged 80, struggled to live by herself. With various physical health ailments and a wish to be closer to John, Nancy entered the same aged care facility as John in March 2019.
Their assets in October 2018 when John entered aged care were:
- Main residence occupied by Nancy: $900,000
- Bank account: $80,000
- Personal effects: $10,000.
When Nancy entered aged care, they sold the home, paid a refundable accommodation deposit (RAD) of $550,000 for Nancy and a refundable accommodation contribution (RAC) of $349,933 for John.