Nick Bruining Q+A: Should I put Dad’s house in my name to cut aged care cost?

Question

My dad lives by himself in his own home, which is worth about $850,000. He has cash assets of about $250,000.

He is in the early stages of dementia so will need to move to an aged care home in the future.

I’m wondering what is the best way to manage his assets. It seems unfair that he’d potentially need to give all that to get a place in a home.

Would his house be better off in my name so we wouldn’t need to add it into the asset mix?

Answer

Your dad’s situation is not unique, and the issues you face are common. Much depends on when the move is made, because the rules change significantly on July 1 this year.

When the time comes to move him into aged care, under the current rules you will need to consider three financial issues.

Your dad’s daily care will be paid through a daily fee that is set at 85 per cent of the full age pension. Some facilities charge for “extra services” — typically about $35 a day — which in many cases is all but compulsory. He is likely to be on a full age pension, which should cover this fee.

If you keep the house, it remains exempt from Centrelink’s asset test for two years from his entry into the facility. It may be worthwhile renting out the property and using this money to supplement the costs of your dad’s care.

Note that the net rent will be assessed under Centrelink’s income test. If you sell or dispose of the house, including “gifting”, the asset value will be included in means testing and will jeopardise his Centrelink age pension payments.

It will also contribute to a means-tested daily fee which increases the amount he will be required to contribute to his daily care.

The most significant outlay will be the cost of accommodating him in the aged care home. In effect, he “buys” a room. Prices vary between facilities, but typically range between $450,000 and $750,000.

If he can’t provide the full lump sum at the time he moves, any lump-sum shortfall is converted into a daily accommodation payment.

You should obtain specialist aged care financial advice to help you decide what to do, bearing in mind that if your dad moves before July 1 this year and if the full amount of the refundable accommodation deposit is paid, that total would be refunded to the estate on his death.

Question

You have spoken before of the advantage of splitting funds held in an account-based pension between a growth option and a cash option within the same fund.

Then you would just receive monthly payments from the cash option as this conserves the amount of money in the higher investment earning option.

I understand this and I follow the logic but I can’t find anywhere within my correspondence from AustralianSuper any reference to “unit pricing” for the total funds held in my accounts.

Is a super fund like a managed investment fund, with us actually holding a certain allocation of “units” and the value of these is changing — usually daily — with changing values and, therefore, the performance by the ASX and others?

Answer

The short answer is yes. Super funds invest in growth assets on your behalf and different funds have different ways of reporting valuations and returns.

The principle behind this strategy still applies, which is to collect the profits from those growth options when they are there and to top up or replenish the cash pool, which is where you are taking your payments from.

Given the recent performance of funds, now is an excellent time to do exactly that and reassess things again in a few months.

If the market has taken a downturn, you can celebrate cashing in the profits when they were there. If it goes up further you can lock away those new profits, using the same trick.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association