Aged Care: we debunk the myths about the upfront payment

A concern for many people moving into aged care is the upfront payment of a lump sum bond (since 1 July 2014 called a Refundable Accommodation Deposit or RAD).

This payment is required to secure a room in a residential facility, and ranges from around $300,000 to well over $1 million (depending on the location and quality of the facility).

It’s a lot of money – which is why it’s important you do your research before committing to a facility.

Nonetheless, there are three important facts you need to know about RADs:

1. The RAD is refundable

A RAD is fully refundable when you leave care.Some residents, who only partially pay the lump sum RAD on entry, are asked to pay an ongoing fee called a Daily Accommodation Payment (DAP). This represents the unpaid amount of the RAD multiplied by an interest rate that compensates the facility for lost earnings on the full amount of the RAD.An option that people have to manage their cash flow is to have the DAP drawn from the partial lump sum they paid towards to the RAD. This can have the effect of depleting the amount of the RAD that would be returned to the resident or their family on exit from the facility.A common question is “What happens if the facility goes out of business?Would the resident lose their RAD?”

The answer: A RAD is guaranteed by the Federal Government if it is paid to an approved provider – an important thing to check when you are selecting a care provider.

2. The RAD is asset-test exempt for Centrelink purposes

While the amount of the lump sum RAD is assessed towards calculation of the resident’s means tested fee, the RAD is not included as an asset for assessment of the resident’s Centrelink or DVA pension.

3. How to pay a RAD if you have very few assets

An aged care facility is not permitted to charge an accommodation payment where a resident has a means tested amount calculated at the date of entry that is below the maximum accommodation supplement (which is the amount the Government actually contributes towards the resident’s aged care costs).Without going into the complexities of the calculations, it is where the resident’s total assessable assets are below the current threshold of $159,631.20.If a resident is assessed as ‘low means’, they can be asked to pay a lump sum accommodation contribution known as a Refundable Accommodation Contribution (RAC), or if paid as an ongoing fee, then a Daily Accommodation Contribution (DAC).Aged care facilities are required to offer a number of places to ‘low means’ residents. However, as these places are limited and can be in shared wards, it is really important that residents and their families do their due diligence to ensure they are happy with the place on offer.

Disclaimer:This article has been produced by Australian Unity Personal Financial Services Ltd (‘AUPFS’) ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459 of 114 Albert Road, South Melbourne, VIC 3205. It does not represent legal, tax, or personal advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. AUPFS is a registered tax (financial) adviser and any reference to tax advice contained in this document is incidental to the general financial advice it may contain. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Nothing in this document represents an offer or solicitation in relation to securities or investments in any jurisdiction. Where a particular financial product is mentioned, you should consider the Product Disclosure Statement before making any decisions in relation to the product and any particular outcome or future performance is not guaranteed. Whilst every care has been taken in its preparation, AUPFS and its related bodies corporate make no representation as to its accuracy or completeness. Published in October 2016 © Copyright 2016