Gifting Money: How it can affect your situation

With the end of financial year just passed, I thought it was timely to share with you some thoughts around gifting and how it can reduce the cost of aged care. 

When it comes to residential aged care, many people believe if they don’t have any money, they won’t be able to move in. It simply is not true. Most aged care homes keep a ratio of low means residents and market price payers. Low means residents pay a contribution towards their accommodation based on their means. The government provides a “tops up” to the facility, up to a maximum of $61/day. That doesn’t mean that if you are a low means resident, it will be affordable. The means test to calculate your accommodation contribution will levy you 17.5% of your assets between $52,500 and $178,839. Plus 50% of your income above $28,974/ year for singles or $28,454/year if you are a member of a couple. The income threshold is based on the income for someone receiving the full age pension. For most people it is the asset test that affects them.

How can you reduce your assessable assets?

Strategies to reduce your assessable assets such as repaying debt, gifting, prepaying funeral expenses or purchasing a funeral bond and/or purchasing an income stream with an asset test exemption (or a combination) can have a significant impact on your accommodation contribution. In addition to the accommodation contribution low means residents pay the basic daily fee, set at 85% of the Age Pension, currently $55 per day and of course you will still have your own personal expenses and the cost of any additional services (like wine with meals, Foxtel or hairdressing)

Let’s look at an example:
Mary receives the full age pension, she has $100,000 of investments and $5,000 in personal assets. Mary’s daughter lives in her home and qualifies as a protected person. Mary’s accommodation contribution under the income test is zero. Under the asset test she would need to pay $25.24/day which is $9,187/year. Mary has the choice to pay her accommodation contribution by a lump sum, daily payment or a combination. The lump sum amount, which is calculated using a government set interest rate (currently 4.07%p.a) is $226,354, clearly she cannot afford this but she may choose a combination.

For many low means residents seeing these numbers causes a lot of financial stress and some wrongly believe that they will have to sell their home. For Mary, the combination of the accommodation contribution and basic daily fee means a cost of aged care is $80/day which is $29,174/year and far more than her pension and other income. Paying a lump sum of $226,000 is likewise impossible.

But if Mary could reduce her assessable assets by $40,000 – which could be through a combination of repaying debt, gifting, pre-paying funeral expenses and/or purchasing an income stream with an asset test exempt amount – her accommodation contribution would drop from $25/day to $6/day and the equivalent lump sum would reduce from $226,354 to $53,898.

End of financial year can be a great time to look at asset reduction strategies as the gifting limits are $10,000 per financial year (with no more than $30,000 in 5 years) potentially enabling you to gift $10,000 on 30 June and $10,000 on 1 July. Many low means residents think that they can’t afford to get financial advice, I think they can’t afford not to get it.

As always, happy to chat. You can contact me here.


You can read more on the government website here.

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