adding value through aged care advice rahul singh – anz technical services
TRANSCRIPT
Adding value through aged care advice
Rahul Singh – ANZ Technical Services
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Recap on means testing of aged care
Strategies
Agenda
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- Average RAD - $355,000
- Average age at entry – 83.3 years
- 89% of residents receiving social security payments
- Average stay is 3.5 years for low care and 2.5 years for high care
- 2012-13 funding of residential care – 71% Government; 29% resident
- 93% occupancy rate
Some key numbers
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- Basic daily care fee – 85% of the single basic age pension rate
o $47.49 per day or $17,334 per annum
- Accommodation payment – cost of buying into the facility
- Means tested care fee – cost of paying for your care
- Additional charges / extra services fee
- Incidentals
Aged care fee structure
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Accommodation payment – cost of buying into the facility
o Determined when “Income and Assets” SA 457 assessment form is completed
o Three categories:
Low means
Nil payment
Moderate means
• Calculated amount• Cannot be more than
$19,434 annually
High means
Advertised price
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Accommodation payment status?Low means
Income < $25,316 (single), $24,848 (partnered)
Assets < $46,000
Moderate meansCalculated amount <
$19,434
Income < $25,316 (single), $24,848
(partnered)Assets between
$46,000 and $157,051
Assets < $46,000Income between
$25,316 and $64,184 (single), $24,651 and $63,519 (partnered)
High meansCalculated amount > $19,434
Income < $25,316 (single), $24,848 (partnered)
Assets > $157,051
Assets < $46,000Income > $64,184 (single), $63,519
(partnered)
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Means tested amount calculation
Income
50% of assessed income above the income free area*
(*25,316 for singles, $24,848 each for couple separated by illness)
Assets
17.5% of the value of assets between $46,000 and $157,051+1% of the value of assets between $157,051and $379,154+2% of the value of assets above $379,154
o If the above calculation is > $19,434 (current maximum accommodation supplement), then the person is high means
o If the above calculation is < $19,434 then the person is eligible for government subsidy towards cost of accommodation and is either low or moderate means
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Assets = all assets that are assessed for social security purposes are assessed
Exceptions:
• Principal home – if NOT resided by a protected person, but then capped to $157,051
• Refundable accommodation deposits
Accommodation payment – assessment of assets
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Income = Assessed by social security + income paid by Centrelink / DVAExceptions:
• Minimum Pension Supplement
• Energy Supplement
• DVA Disability Pension – where the person or their spouse has qualifying service
• DVA War Widow or Widower Pension where the person has qualifying service
• Rent from home where the person or their spouse is paying
o interest on accommodation bond or paying accommodation charge OR
o daily accommodation payment / contribution for their cost of accommodation
•What about account based pensions?
Accommodation payment – assessment of income
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• Anyone with assets above $157,051
• Subject to a maximum not on assets but advertised price
Payment options
1. Lump sum - Refundable Accommodation Deposit (RAD) Must leave resident with $46,000 in assets (full value of home included)
2. Interest rate linked periodical payments – referred to as Daily Accommodation Payment (DAP)
3. Combination of lump sum and periodical payments
• Required to enter into an accommodation agreement within 28 days
• Facility must agree to client’s choice to deduct DAP from RAD
• Facility permitted to increase DAP to compensate for loss of interest
Accommodation payment – high means resident
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Accommodation contribution – moderate means resident
• Different to accommodation payment for high means resident• Maximum capped to a calculated
amount rather than the advertised price
• Maximum lower of calculated amount and accommodation supplement payable to the facility
• Fluctuates quarterly based on assets and income
• Availability of moderate means beds?
Payment options1. Lump sum - Refundable Accommodation
Contribution (RAC)2. Calculation linked periodical payments –
referred to as Daily Accommodation Contribution (DAC)
3. Combination of RAC & DAC
• Required to enter into an accommodation agreement within 28 days
• Facility must agree to client’s choice to deduct DAC from RAC
Facility permitted to increase DAP to compensate for loss of interest
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Accommodation contribution – moderate means residentFranco, partnered, owns a home valued at $400,000. His spouse lives in it. He has other assets of $120,000 cash and $20,000 car and contentWhat is his accommodation contribution?
• Advertised price is irrelevant
Payment options:
• Periodically (DAC) - $4,200 per annum (quarterly reassessment)
• Lump sum (RAC) & DAC - $24,000 (RAC) & $2,724 per annum (quarterly reassessment)
Can choose to have $2,724 per annum DAC deducted from $24,000 RAC
Facility can increase DAC if it is deducted from RAC
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• Resident’s co-contribution towards the cost of care
• Only payable on a calculated amount in excess of $19,434
• Subject to an annual cap ($25,529) and lifetime cap ($61,269)
• Lower of: cost of care (ACFI provided) calculated amount
• Determined by completing the SA 457 form
• Reassessed quarterly
Means tested care fee
But remember• Home assessed as an asset if not resided by a
protected person but capped to $157,051
• RAD assessed as an asset but not deemed
• Rental income exempt if DAP / DAC paid
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Assessment of the homeWhat’s done with the home
Aged care assessment Social security assessment
Resided by a spouse, eligible carer or relative
Exempt
Rented Assets component
Assessed as an asset but capped to $157,051
Income component
Exempt if accommodation payment paid as a DAP / DAC
Assets component
Exempt for first 2 years
Income component
Exempt if accommodation payment paid as a DAP / DAC
Sold Proceeds assessed depending on where they are invested
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• An asset reduction opportunity for the purposes of means tested care fee
• Keep & rent the home - ensure the accommodation payment is partly paid by DAP
Selling the home can be detrimental
Maintaining social security entitlements
Reduction in means tested care fee: particularly assets component
• It is not always desired to retain the home
Alternative options?
Value of retaining the home
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Net Medical Expense Tax Offset (NMETO)
- SAPTO thresholds to alleviate tax liability- If income > SAPTO thresholds, NMETO assists to reduce tax
Single Partnered
<$90,000 20% of eligible expenses > $2,218*
<$180,000 20% of eligible expenses >$2,218*
>$180,000 10% of eligible expenses >$5,233*
>$180,000 10% of eligible expenses >$5,233*
- End effect, 2% ML but no personal income tax liability
* Thresholds relate to 2014-15
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• Structuring accommodation payment At least some DAP / DAC for couples Cashflow poor clients – DAP / DAC deducted from RAD /
RAC
• Retaining home, renting it and paying some DAP / DAC
• Paying RAD to increase social security entitlements
• Using lifetime / term based annuities
• Insurance bonds in controlled private trusts?
• Sourcing cheaper financing for the RAD borrowing from family, reverse mortgage or bank
Advice opportunities• Gifting within allowable limits
With pre-planning, 5 years before moving for self-funded retirees
• Funeral bonds / burial plots
• Ensure tax advisers are claiming / aware of NMETO !
• Ensure SA 457 form has been completed when relevant
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Mavis (83) looking to enter a residential aged care facility. She is single and has the following assets
- House - valued at $500,000
- Cash - $100,000
- Car and contents - $10,000
The family has done some research and the facility of interest has informed them the maximum advertised price is $400,000 RAD.
Case study
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Case study – no advicePre care ($) In care ($)
Age Pension 22,365 21,423
Investment income 3,000 6,300
Total income 25,365 27,723
Basic Daily Care Fee
Not applicable
17,334
Accommodation payment 400,000 RAD (lump sum paid)
Means tested care fee 7,329
Incidentals 3,000
Total expenses 22,265 27,663
Net income 3,000 60
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Case study – with advice: retaining home and renting itPre care ($) In care ($) Retain and rent home
Age Pension 22,365 21,423 22,365
Investment income 3,000 6,300 300
Rental income Not applicable 20,000
Total income 25,365 27,723 42,665
Basic Daily Care Fee
Not applicable
17,334 17,334
Accommodation payment 400,000 RAD (lump sum paid) 100,000 RAD paid, 18,450 per annum DAP ($300,000 * 6.15%)
Means tested care fee 7,329 1,103
Incidentals 3,000 3,000
Total expenses 22,265 27,663 39,887
Net income 3,000 60 2,778
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Case study – with advice: Invest in annuityPre care ($) In care ($) Retain and rent
homeInvest in annuity
Age Pension 22,365 21,423 22,365 22,365
Investment income 3,000 6,300 300 17,371
Rental income Not applicable 20,000 Not applicable
Total income 25,365 27,723 42,665 39,736
Basic Daily Care Fee
Not applicable
17,334
Accommodation payment 400,000 RAD (lump sum paid)
100,000 RAD paid, 18,450 per annum DAP ($300,000
* 6.15%)
400,000 RAD (lump sum paid)
Means tested care fee 7,329 1,103 6,857
Incidentals 3,000
Total expenses 22,265 27,663 39,887 27,191
Net income 3,000 60 2,778 12,545
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- Many technical issues - Aged Care calculator available through Adviser Advantage- Contact Technical Services if you want to run a scenario
o 1800 444 019
In closing up…..
