For many, if not most, elderly people, their primary asset is their family home. When a person retires with substantial super, these benefits are frequently depleted by the time your need to move into an aged care facility.
According to the Australian Institute of Health and Wellbeing, only 8.7% of aged care residents are self-funded retirees. The vast majority of people receive either a DVA or a Centrelink pension. This indicates that these residents have few assets outside of the family home (which is exempt from the assets test for these benefits).
As a result, the decision about the family home is often the most important decision you will make (or have made).
The Length of Stay in a Nursing Home
One of the most difficult aspects of deciding whether to keep a family home is not knowing how long you will be in the aged care facility.
According to the Australian Institute of Health and Wellbeing, the average length of stay in a nursing home in 2022 is approximately two years and six months. Stays were shorter for men and longer for women (and women make up 70% of residents). Two years and six months is a simple average, there is significant amount of variation in that number. In fact 27.1% of residents stayed for less than two years, while 20.5% stayed for more than five years (this figure was slightly higher in major cities).
As a result, relatively long stays in nursing homes are common: One in every five people who enter residential aged care remain there five years later. This fact is taken into account by the system in a variety of ways. The first is a lifetime cap on the means-tested care fee that residents must pay. This fee is capped at about two and a half years' worth for life. Another advantage is that once a resident has moved into a facility, the Refundable Accommodation Deposit does not increase.
Residents who use debt, such as a reverse mortgage, to pay some or all of their aged care costs may find that the amount of debt begins to approach the loan facility's limits as the years pass. Simple investment analysis tells us that the net equity in the home should be unaffected as long as the home's growth rate remains consistent with long-term averages. However, growth can be lumpy, so having a plan in place for what happens if the debt reaches its limit makes sense.
Of course, the best strategy is to borrow as little as possible. Obviously, prudent financial planning requires longer stays in residential care.
The presence of a 'protected individual'
A protected person is someone whose continued presence in a home after the owner (or co-owner) enters residential care exempts the home from the asset tests that apply to aged care. There are four types of protected people. They are as follows:
The resident's spouse or partner;
A dependent child or student;
A residential carer who has been with the resident for at least two years and is entitled to a Centrelink benefit on the day the resident moves into the aged care facility; or
A close relative who has lived with the resident for at least five years and is entitled to a Centrelink benefit on the day the resident moves into the aged care facility.
The presence of a protected person means that the family home's value is not counted against the assets test for either the means-tested care fee or the accommodation fees. In most cases, where a protected person remains in the family home, there is an economic reason for doing so.
Not to mention the fact that the protected individual still requires a place to live!
The presence of a protected person means that the family home's value is not counted against the assets test for either the means-tested care fee or the accommodation fees. In most cases, where a protected person remains in the family home, there is an economic reason for doing so.
Not to mention the fact that the protected individual still requires a place to live!
The absence of a protected individual.
In the absence of a protected person, the decision to keep the family home becomes just that: a decision. You simply need to decide whether to keep or sell the family home.
Capital Gains Tax
One thing to remember is that the principal place of residence CGT exemption that applies to a family home lasts for up to six years after you leave it, provided you do not claim another principal place of residence.
Furthermore, where a principal place of residence is included in a deceased estate, the CGT exemption continues to apply for two years after the owner's death.
This means that a family home's CGT-free status can last for up to six years after the owner enters an aged care facility.
Alternative uses for the proceeds of any family home sale must be weighed against this feature of the family home. There many options her we may discuss this at later date.
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