Many families have been there – Mum has had a fall and is languishing in hospital. The medical advice (and the hospital’s demand) is that she can’t go home but needs to go into an aged care facility and, by the way, pronto, because she’s what they call a ‘bed blocker’.
In crisis mode and after an anxious and agonising search that stretched and stressed their relationships (as it does), the children have finally found a place for her. It’s perfect and just down the road from two of the children.
However, the aged care facility requires mum to pay a Refundable Accommodation Deposit (RAD) of $450,000 for her accommodation in the facility. Mum doesn’t have the ready money to pay the RAD. In desperation, one of the children (a property developer) offers to pay the RAD for his mum. Problem solved – or is it?
It would seem that the son’s proposal is becoming more common and is usually a mixture of motivation – a sense of family duty and the pragmatic desire to retain the family home. The trend is such that some commentators are even suggesting that, in the near future, the cost for adult children to support and care for their ageing parents will be more than the cost of raising and supporting their own children.
So what are the implications?
First – the Son
If you were him would you simply front up to the aged care facility with your cheque for $450,000? It’s surprising how many do without thinking about a few issues beforehand, such as:
- Wouldn’t it be wise to document the basis upon which the son is providing the money?
- Sure would
- But what would the document say?
- Does the son realise that the law says that, when mum leaves the facility, e.g. she dies, the RAD must be refunded to her estate and not to the son?
- The son would then simply be an unsecured creditor of mum’s estate along with any other creditors
- Should the son not think about getting some form of security for the repayment of money to him?
- We think he definitely should, such as a security under the Personal Property Security Register legislation (PPSR).
Second – the Mum
If mum is receiving an age pension, she needs to consider the implications of her son’s proposal from two financial perspectives:
- Her costs for aged care;
- The effect on her pension.
In respect to her aged care, for the purposes of assessing her requirement to pay a means tested care fee, on the face of it, the value of her assessable assets includes the amount of the RAD paid by her son. Consequently, his generosity may result in increased aged care fees for mum.
However, the shiny new Subsidy Amendment (Flexible Care Subsidy and Other Measures) Principles 2016 refers us to the Social Security Act 1991 to work out the value of Mum’s assets. Under the Social Security Act, when calculating assessable assets, the value of the RAD is reduced by the amount of any charge or encumbrance over it.
Question – does a loan to Mum from the son to pay the RAD create a charge or encumbrance over the RAD?
For the moment it appears, the answer may be yes! Specifically, section 18.104.22.168 of the Department ofSocial Security’s Guide to Social Security Law provides that “if a recipient has an unsecured loan ANDprovides evidence that the loan was specifically obtained to purchase the asset, the outstanding amount of the loan IS deducted from the value of the asset.”
This is potentially great news for Mum as the means tested care fee is worked out based upon the value of Mum’s net assets (assets less encumbrances), so it is probable that Mum won’t have the pay that fee. Alternatively, if she had paid it out of her own assets, the RAD would be a fully assessable asset for the purposes of this fee.
But – yet, there has to be a ‘but’ – as with any happy ending, it is all about evidence and it rests entirely on Mum’s ability to provide evidence that the loan was specifically obtained to purchase the RAD. That is where we come in.
If nothing else, it again emphasises the importance of Mum and her family getting good legal and financial advice before taking that formative step into the murky world of aged care.
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