The Aged Care Means Assessment Explained
When a person moves into residential aged care in Australia, Services Australia conducts a 'means assessment' to determine the fees they will need to pay. This assessment considers both your income and assets, and the family home's status is a critical factor in this calculation. Understanding how the rules apply to your home is the first step in creating a protection strategy.
How Your Home Is Treated in the Means Test
For the purposes of the means assessment, the value of your former home is capped unless a 'protected person' continues to live there.
- Home Exemption Cap: If no protected person lives in the home, its value is included in your assessable assets, but only up to a maximum 'home exemption cap'. As of late 2023, this cap was around $193,219, with the amount indexed and updated periodically. Any value above the cap is not included in the means assessment.
- Protected Person Exemption: The home is completely exempt from the assets test if a protected person (such as your partner, a dependent child, or a long-term carer) continues to live there.
Strategic Options for Paying Accommodation Costs
One of the biggest concerns for many families is the Refundable Accommodation Deposit (RAD), which is the lump sum payment for the resident's room. You are never required to pay the RAD as a lump sum and can use alternative strategies to avoid selling the house.
The Daily Accommodation Payment (DAP)
Instead of paying the RAD upfront, you can choose to pay an equivalent daily rental-style payment known as the Daily Accommodation Payment (DAP). You can also choose a combination of a smaller RAD and a DAP. This option allows you to keep the capital tied up in the home, though it does mean ongoing payments are required.
Other Sources of Funds for Aged Care Costs
If you need to meet aged care costs without selling the house, consider using other assets first. Many people liquidate bank savings, investments, or use superannuation to cover costs before touching the family home.
Proactive Asset Protection Strategies
Long-term planning, often with the help of a financial planner or elder law specialist, is the most effective way to protect your assets.
Gifting Rules
For those considering gifting assets to family members, it is crucial to understand Centrelink's rules. There are limits on how much can be gifted without it being counted as a 'deprived asset' for the means test. Any gifts over $10,000 in a single financial year or $30,000 over five years will be assessed as a deprived asset for a period of five years from the date of the gift.
Legal Agreements and Trusts
Formal legal arrangements can offer protection, but they require expert advice to be effective and avoid unintended consequences. For example, a family agreement, where an older person exchanges property for care, needs to be a written, formal agreement to avoid being treated as an assessable gift by Services Australia. Transferring a property into a trust is another complex strategy that must be managed carefully, with a particular focus on whether it constitutes a gift.
Financial Support and Home Equity Options
There are government and financial products that can provide additional cash flow to help pay for care, reducing the need to sell the home.
Government Home Equity Access Scheme
This is a voluntary reverse equity mortgage offered by Services Australia that provides an income stream to supplement your retirement income. This can be a useful way to access the value of your home without selling it, but it does add debt against the property.
Comparing Home Retention Strategies
| Strategy | How It Works | Pros | Cons |
|---|---|---|---|
| Pay a DAP | Pay the aged care accommodation costs as a daily fee, not a lump sum (RAD). | Keeps the house's capital intact; maintains ownership. | Ongoing payments required; total cost may be higher over time. |
| Rent the Home | Lease out the former family home to generate income. | Creates a steady income stream to help with aged care costs. | Net rental income becomes assessable under the means test; tenancy management. |
| Reverse Mortgage | Borrow against the value of your home as a loan. | Provides immediate cash flow without selling; can be used for RAD or DAP. | Adds debt to the house; can significantly reduce inheritance for heirs. |
| Use Other Assets | Liquidate other assets like investments or savings. | Preserves the family home; avoids taking on new debt. | Reduces other wealth; may have tax implications; limited by available assets. |
The Role of Professional Advice
Making decisions about your financial future and family home when faced with aged care is complex and emotional. Seeking expert advice is highly recommended to navigate the options effectively.
An aged care financial adviser can provide an independent assessment of your financial situation, project future costs, and model different payment strategies. They can explain how each option affects your pension, fees, and overall estate plan. For legal matters, an elder law solicitor can ensure any agreements or transfers are legally sound and protect your interests.
Conclusion: Your Home, Your Choice
In Australia, it is a myth that the nursing home automatically takes your house. While the value is considered in the aged care means test, there are multiple avenues to explore before selling. By understanding the means assessment, leveraging payment options like the DAP, considering home equity schemes, and seeking professional guidance, you can develop a robust strategy to protect your family home and achieve a positive outcome for your future care. For further information on financial services for seniors, visit the Services Australia website.
Final Checklist
To summarise the key actions, follow this checklist to plan for aged care and protect your home:
- Get a Means Assessment: Understand exactly how your home and other assets are assessed by Services Australia.
- Explore Payment Options: Choose between paying the RAD, DAP, or a combination that suits your financial situation.
- Investigate Home Exemption: Confirm if a 'protected person' will continue to reside in the home, exempting it from the assets test.
- Review Gifting Rules: If gifting, ensure you stay within Services Australia's limits to avoid penalisation.
- Seek Professional Advice: Engage an aged care financial adviser to build a bespoke strategy.
- Consider Home Equity Schemes: Look into options like the Government's Home Equity Access Scheme if cash flow is needed.
- Explore Alternatives to Residential Care: Investigate in-home care packages as a way to remain in your home longer.
- Formally Document Agreements: If involving family, create formal, written agreements to avoid Centrelink issues.
