Helping Your Clients Manage The Costs Of Aged Care

Moving into aged care is a life-changing decision – which is why your clients need to start planning early. Here’s how you can help them make a smooth transition into their next life phase.

As a trusted accountant or adviser, you understand your clients’ finances better than anyone – perhaps even themselves. That’s why you’re best-positioned to guide them through their major financial decisions, and help them choose the right solutions for their needs.

While your clients put a lot of thought and preparation into some life events, like buying a house or starting a family, they can be surprisingly underprepared when it comes to entering aged care. This can mean that they end up making hasty decisions, when something happens and they’re no longer able to live independently.

When combined with a lack of understanding of the true costs involved, this has the potential to cause a great deal of financial hardship – as well as stress and tension between family members. But by offering a helping hand to your clients and their loved ones ahead of time, you can help smooth the process for all generations.

Understanding the costs

Aged care in Australia is subsidised by the government, but clients with a certain level of income and assets may need to contribute as well. Different facilities offer varying levels of accommodation and service so the final costs will depend on which option they choose.

The price of real estate in the area is also an important factor – for example, clients can expect to pay more in a major city like Sydney or Melbourne than in a regional area.

The main costs1 are:

  • Basic daily care fee. All residents of an aged care facility must pay this amount, currently set at a maximum of $48.44 per day – or 85% of the basic rate of the single age pension.2  
  • A means-tested care fee. An additional fee that some people need to pay, based on their assets and income – after a test by the Department of Human Services. Clients won’t have to pay this fee if their annual income is less than $25,792 for a single person, or $25,324 for a client who is a member of a couple (and is considered illness-separated).3
  • Accommodation payment. This can generally be paid either as a lump sum refundable accommodation deposit (RAD) or a daily accommodation payment (DAP). The best option for your client will depend on a range of factors. Clients’ whose income and assets are below certain levels may instead pay an accommodation contribution, which can be paid either as a daily accommodation contribution (DAC) or lump sum refundable accommodation contribution (RAC). Lump sum accommodation payments/contributions are fully refundable to the client’s estate when they pass away.

Navigating changing regulations

As the rules around eligibility for aged care subsidies shift, your clients will look to you for help understanding the impact that these changing rules can have on their options. An example is the new income assessment rules for the age pension, set to come into effect on 1 January 2017.

Currently, a person’s former home – and any net rent it generates – is included in the assets and income tests for the means-tested care fee4, with the value of their home for asset purposes capped at $159,631.205. But it is excluded from the assets and income tests that determine eligibility for the age pension, provided the client rents out their former home and also pays at least part of their aged care accommodation payment as a DAP or DAC.

This changes for clients who enter aged care on or after 1 January 2017, with net rental income generated by the person’s former home included in the income test for the age pension as well, and the former home often counting as an assessable asset under the assets test after two years.

So, if your client moves into aged care before this date, pays at least part of their aged care accommodation payment as a DAP or DAC, and rents out their house – the income will be exempt for age pension income test purposes and the former home will remain exempt under the assets test. But if they move after this date, it will be included in the income test for the pension and the former home will generally become an assessable asset after two years.

For clients who are considering moving into aged care in the immediate future, you’ll need to weigh up their interests and help them decide if it’s better to act before the new rules come into force.

Providing aged care advice to your clients

Clearly, when it comes to achieving the best aged care outcomes, you play a critical role in helping your clients structure their assets and guiding them through big decisions, such as selling the family home. And because the best planning starts early, it’s a good idea to begin this conversation with your clients soon into their retirement – with aged care as a core component of their estate plan.

To put your retired clients on the best footing from the outset, it might be worth getting specific accreditations that will enable you to provide specialised aged care advice. A small investment into the necessary training will pay off down the track when you can offer the next level of value-added service to your clients.

However, if you don’t have the capabilities to expand your in-house offering to include aged care advice, you can still take care of all your clients’ retirement needs – by building a referral relationship with an aged care specialist you trust. That way, you can ensure your clients are looked after – and feel confident that you’ll always point them in the right direction for the help they need.

1 Note: Different fees and charges apply for clients who entered aged care prior to 1 July 2014
2 Australian Government, Ages care homes: costs explained.
3 Australian Government, Income and assets assessment for aged care home costs.
4 Different rules apply to clients who entered aged care prior to 1 January 2016
5 Australian Government, Income and assets assessment for aged care home costs.