This case shows why you should always seek financial advice when planning for aged care costs
When it comes to aged care planning, it's not only the emotional toll that families have to confront but also a maze of financial complexities.
In a recent case, a family found this out the hard way.
The Scenario
Two siblings were helping their parents navigate the complexities of aged care. Their mother had been diagnosed with dementia and needed to transition into an aged care facility, while the father would continue living in the family home.
The son, a successful businessman, consulted his accountant about asset protection and, acting on this advice, transferred the family home into a trust. He thought he was securing the family's financial future. Instead, he stumbled into a financial disaster.
The Mistakes
Transferring the home triggered a reassessment of assets, leading to a loss of Age Pensions for both parents.
The house transfer inflated the assessable assets, leading to an increase in Means-Tested Care Fees (MTCF).
The transfer also meant the family had to pay an additional Daily Accommodation Payment (DAP), based on an MPIR of 7.9%.
The Costs
Loss of Age Pension: The Pension was $1,096 per person per fortnight. Annually for both, that comes to $56,992, and over five years, it amounts to $284,960.
Additional DAP: The RAD was $550,000. Using an MPIR of 7.9%, the extra DAP would be 550,000 times 0.079/365 = $108.90 per day. Over a year, that’s $39,749.50, and over five years, it's $198,747.50.
Means-Tested Care Fee (MTCF): The MTCF would depend on the parents’ income and assets. Given that their assets would have been inflated due to the inclusion of the house, this would have increased. However, exact calculations would require additional information on income and assets.
Legal and Stamp Duty: The house transfer cost about $80,000 in legal fees and stamp duty.
In total, the family was looking at immediate costs of $630,000 ($550,000 for the RAD and $80,000 for legal and stamp duty).
The ongoing additional DAP costs over five years would be $198,747.50, and the loss in Pension over the same period would be $284,960. This doesn’t even account for the Means-Tested Care Fees, which would add to the total.
The Conclusion
“In the absence of specialised aged care financial advice, the family’s actions led them down a financially perilous path. The son’s business acumen and the accountant’s general advice fell short when it came to the specific, complex rules governing aged care and Centrelink,” said Shaun Ganguly of Aged Care Financial Planning.
“Navigating the aged care system is not just about understanding the emotional and physical needs but also about understanding the intricate financial landscape. This family learned the hard way that one wrong financial move could result in hundreds of thousands of dollars in avoidable costs.”
At Aged Care Financial Planning, Shaun said all aspects are carefully considered, potentially saving families from expensive mistakes. A small upfront investment in specialised advice can prevent costly errors down the road.
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