It’s crazy to think that people would inflate their wealth when the cost of aged care is means tested, yet this practice is common across Australia. Why? Primarily because individuals seek a higher standard of aged care accommodation.
Under the existing aged care means test, “low-means residents” are shielded from market-rate accommodation fees. Instead, they pay a portion, with the government subsidising up to $68 daily. This means test evaluates residents’ assets and income at the time they enter aged care.
The cost for aged care for low-means residents is relatively affordable, but often results in shared rooms or less desirable single rooms within the facility. The means test formula determines your contribution towards accommodation and care costs. Opting out of this means-testing means facing the market price for accommodation and a means-tested care fee that can reach $416 daily.
Consider this scenario: Peter and Kerry, both in their late 70s, own a $1 million home in Wantirna, have $300,000 in investments, and $10,000 in personal assets. Peter needs aged care. According to the aged care means test, Peter’s assessable assets total $155,000, qualifying him as a low-means resident. His aged care cost would be $108 per day, combining a basic daily fee of $62 and an accommodation contribution of $46.
Peter prefers not to share a room, but market price rooms cost $550,000 via a Refundable Accommodation Deposit or $126 per day through a Daily Accommodation Payment. Opting out of means testing could raise his daily cost to $604 until he reaches the annual cap of $33,309, after which he’d pay $188 daily, covering his basic daily fee and accommodation payment.
This creates a significant dilemma for many residents and their families. They are willing to pay an extra $68 daily for preferred accommodation but wish to avoid triggering a $33,039 annual means-tested care fee. Consequently, people often inflate their asset values, sometimes borrowing money to secure their desired accommodation.
In Peter and Kerry’s case, they would need an additional $92,500 in assets for Peter to afford the market price. If they borrowed $95,000 and placed it in their bank account, Peter would then pay the market price of $126 daily for accommodation and a basic daily fee of $62, with no means-tested care fee due to insufficient assets and income.
Families must resolve these financial strategies before entering aged care, as the means test is based on assets and income on the admission day. It’s crucial to work out these details in advance, and this is where we come in to help you explore all your options. You can contact us here.
