Should You Keep or Sell Your Home

A number of people believe that you have to sell your home when you move into aged care.

When asked who will force them to sell, the answer is typically either the government or the aged care home. It’s a myth.

Whether you choose to keep or sell the family home when you move into aged care is up to you. Selling the home may be the right decision, but there are a few things you should think about first.

Let’s start with how the home is assessed to work out how much you can pay for your aged care.

The calculations

For calculating the amount that you can contribute towards your aged care costs, the value of your former home is capped at $178,839 (unless a protected person lives there, in which case it is exempt).
A protected person includes: your partner or dependent child, a carer who is eligible for an Australian Income Support Payment who has been living in the home for at least two years, or a close relative is eligible for an Australian Income Support Payment who has been living in the home for at least five years.

If your home is worth less than the $178,839 cap, then the market value of the home will be used in the assessment. In most cases, the market value will be far greater than the cap. As these special rules only apply to your former home, if you choose to sell, you are increasing the amount of assets and potential income that will be included in the aged care assessment.

HERE’S HOW THE AGED CARE MEANS TEST WORKS

50c per dollar above $28,974.40 per year (Single) $28,454.40 per year (member of a couple)

17.5% of assets $52,500 – $178,839.20

1% of assets $178,839.20 – $431,517.60

2% of assets above $431,517.60

IF YOU ARE A MEMBER OF A COUPLE:

• Half of the combined income and assets are assessed
• If your calculated amount is $60.74 per day or less, you are considered a low-means resident.
• If your calculated amount is more than $60.74 per day, you will pay the market price for your accommodation. Your Means Tested Care Fee is the amount above $60.74 per day.
• There is an annual limit of $29,399.40 that applies to the Means Tested Care Fee.
• There is a lifetime limit on means-tested fees across Home Care and Residential Aged Care of $70,558.66.

Now let’s look at how Centrelink treat your home for the purpose of calculating your pension.

Just like with the aged care assessment, your home receives special treatment in calculating your Age Pension.

• Under the pension assets test, the full value of your home is exempt for two years from the date you or your partner leave the home (whichever is later).
• When the 2-year exemption ends, the home is included in your assessable assets at the market value, but your pension assessment changes from a homeowner to a non-homeowner giving you an asset test threshold and cut-off that is $216,500 higher.

While the asset value of the home receives special treatment for both pension and aged care means testing, it is important to know that if you receive rent from the home it is assessable income for both pension and aged care means tests.

There is special tax treatment too. As a general rule, you can keep the main residence Capital Gains Tax (CGT) exemption on your former home for six years after moving into aged care if the property is rented and potentially beyond this if it does not produce income. Be careful though, as the tax implications for you and those who stand to inherit the home are complex and warrant seeking specialist advice.

So with all these special concessions, why are most people so quick to sell their former home?

Well, typically, the former home represents the majority of wealth for the person entering aged care. Without selling it, they cannot meet their cash flow needs. You see, while you can choose to pay for your aged care accommodation by daily payment, the interest rate is 4.07%p.a. Which means a $500,000 accommodation deposit (RAD) has an equivalent daily payment (DAP) of $20,350p.a. When this is added to the basic daily fee ($54.69 per day/$19,962 p.a), a means-tested care fee and any additional services, you can easily be looking at an annual cost of $50,000 or more.

The bottom line is if you have a home and a small amount of money in the bank, it is easy to jump to the conclusion that you have to sell it.

Typically the former home represents the majority of wealth. But for all of the reasons listed above, as well as the potential impact on your estate planning wishes, it is vital to crunch the numbers. Or you can get a Retirement Living and Aged Care Specialist® adviser to crunch them for you! The treatment of your home is unique from any other asset; once it’s sold, it’s too late.

A list of Retirement Living and Aged Care Specialist® advisers can be found on our website www.agedcaregurus.com.au