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Aged Care
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Aged Care: The Importance of the Refundable Accommodation Deposit

Chris Morcom
Partner/Private Client Adviser
17 Apr 2019

In conversations with clients we often hear people in their 40s and 50s being concerned about an ageing parent or grandparent and the need for those ageing family members to go into residential aged care.

One of the key concerns is how those aged family members are going to be able to afford the payment of a Refundable Accommodation Deposit (RAD) to get entry into a residential aged care home of their choice.

A solution I have heard more recently has been the proposition for younger family members to pay the RAD on behalf of the aged family member.

This proposition has two significant drawbacks.

Firstly, when the aged family member passes away, the RAD is paid to that person’s estate. If the deposit has been paid by someone who is not the resident of the facility, there is no option for the RAD to be paid to any person other than the former resident’s estate.

In a situation where there is more than one beneficiary to the state of the former aged care resident, this can result in funds being transferred to other family members from the original payer of the RAD.

Secondly, another drawback is that the RAD is counted as an asset for the means test when calculating aged care fees.  When the RAD is paid by someone other than the resident this effectively increases that persons assessable asset position and would likely mean that the resident’s fees would be higher than otherwise.

Solutions can come in many different ways.

If younger family members are planning on paying the RAD for a person, then a formal loan agreement should be put in place to ensure the repayment of the loan from the estate of the resident of the aged care facility when they pass away. The family of the person entering care should consider whether payment of the refundable deposit is the right option. An alternative is to pay the Daily Accommodation Payment as this would avoid the estate planning complications of someone other than the resident paying the RAD.

The final point to note is that those family members who hold enduring power-of-attorney for older family members should be careful about financial arrangements that are entered into with that family member.

Holding an enduring power-of-attorney comes with significant responsibilities and it is important that you do not put yourself in a position of conflict and that all actions are in the best interests of the person who granted the attorney. This means that you cannot give away the person’s money and you would need to be careful about the financial arrangements entered into on behalf of the member, including loan arrangements.

Hewison Private Wealth advisers are experienced in providing advice about financial arrangements as they relate to the aged care system.  Should you feel that your family needs some advice in this area we encourage you to connect with one of our advisers. Simply CLICK HERE to make contact.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.