It’s a commonly held belief that if you’re moving into aged care, you’ll need to sell your home. There are many reasons for this – people believe that they’ll have no further need of their home anymore and don’t want the bother of managing it, and also believe they’ll need the money from the sale to finance their move into aged care. However, when you delve a little deeper, selling your house is not the only option when it comes to moving into aged care. In fact, in some cases, it may actually leave you worse off financially. And aged care may not be as expensive as you might think. Let’s have a look at your choices, and dispel the misunderstandings about selling your home to finance a move into aged care.
Aged care fees – what you’ll need to pay
You can naturally expect to pay fees for every day you spend in an aged care facility. These fees will typically include:
- A basic, daily fee that covers your daily living costs – things such as meals, power and laundry.
- A means-tested care fee – a contribution based on the amount of income and assets you have over a certain amount
- Accommodation costs to cover your accommodation in the aged care home.
- Extra service fees – a fee to cover optional extra services you may choose to access – such as a higher standard of accommodation or additional services above your assessed care needs
These fees will generally fall into two categories:
- An entry deposit (or lump sum), which is refunded when you leave aged care
- Daily, ongoing fees, which include the basic daily fee and the means-tested care fee
How you can pay it
You don’t have to pay your entry deposit as a lump sum, contrary to popular belief. You also have the option to pay it as part of your rental-style daily cost if you choose. You can think of this as being like borrowing money via an interest-only loan to pay for your entry deposit. There’s a further option of paying your entry deposit with a combination of a lump sum payment and a daily rental cost. All of which means that selling your home may not be as necessary as you might think. You definitely have options.
Government help
Government help is also available for eligible people, and can help take the pressure off meeting your financial obligations. The Australian Government may pay your accommodation costs in part or in full, depending on your assessed level of income and assets. As well, you won’t have to pay the means-tested care fee if you don’t have income and assets over the specified amount. And if you receive full government support, you won’t have to pay the entry deposit either.
To determine the level of governmental support you are eligible to receive, you will need to undergo a means test, to assess your level of income and assets. The lower your means test amount, the more government support you are likely to receive.
Your options when it comes to your home
You can think of moving into aged care as just like moving into a new house. As with any such move, you are free to sell your old home, or rent it out.
Rent your house out
If you keep your home and rent it out, this has benefits in terms of your assets. In this case, only part of the value of the house is counted as an asset when calculating the means-tested care fee (what’s known as the home exception cap). This means that holding onto your house (above a certain amount) will not significantly impact the cost of your aged care.
As well, you’ll have the money you make from the rental payments to help pay for the ongoing fees and daily costs of aged care, and you can still access the capital gains of your house, as house prices rise. This is a much less confronting choice if you are very attached to your family home and are not ready to let it go yet; or if you want to pass the home to your descendants later on.
The downsides are that you will end up paying more than if you choose to pay a lump sum payment, you might get a lower amount of aged pension as your rental income will be counted in the means test and you have to deal with the problems of the rental market. You may also need to pay more income tax on the rental income.
Keep in mind, that if you choose this option, your position is improved if you use a combination of a lump sum and a daily rental payment to pay for your entry deposit.
Sell your house
Selling your house means you can pay for your aged care entry deposit using the proceeds of the sale – either in full or in part, meaning you’ll end up paying less in the long run. This also means you’ll have more pension income, as the entry deposit is exempt from your means test. As well, any money left over after paying your entry deposit can be invested – a smart financial move.
There are drawbacks to selling your house though, in terms of your level of assets. All money received from the sale of the house (after all outgoings are paid) is counted as an asset, which may raise the means-tested fee that you will have to pay, because the value of your assets is higher. So, you may end up with less financial support for your aged care placement.
The upshot
There’s a lot to weigh up when it comes to your decision about your home when you move into aged care. Either option has benefits and drawbacks, and which one you choose will depend upon your unique, individual situation.
Of course, it’s a very personal choice to sell your house or not, and some people may prefer to hold onto their house for a little bit longer, even if they’ll never live in it again. It can be a practical choice as well, as some options may give you a better financial outcome than others.
This article is intended as general advice and should not be substituted for specific financial advice.
