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Residential aged care plays an increasingly important role in helping many older Australians enjoy comfortable and carefree lives. However, one of the tasks for anyone assisting an elderly relative with the move into care is to investigate the various fees and charges, some of which are subject to both assets and income means tests. As the family home is often the largest asset and can be a source of income if rented out, it’s particularly important to understand how it is treated in relation to these tests.
Assets Test in Aged Care
For individuals entering care, the value of the family home is not counted as an asset if it is occupied by:
- Dependent children
- A partner
- Carers who are eligible for government income support and have lived in the family home for at least two years
- Close relatives who are eligible for income support and have lived in the family home for at least five years
However, even if these conditions are not met, the value of the family home that is counted as an asset is capped at $186,331.20 (as of 20 September 2022). If the actual value is less than the cap, then the market value applies.
For a couple where neither partner is living in the family home, half of the net market value of the home will be included as an asset for each of them, up to the cap. This means that understanding the specifics of the assets test is crucial for effective aged care planning.
Income Test in Aged Care
The income test for aged care also has specific rules regarding the family home. For people who entered care between 1 July 2014 and 31 December 2015, rent on the family home is exempt from the income test only if they are paying some level of daily accommodation payment. However, for those who commenced aged care after 1 January 2016, net rental income is assessable.
This distinction is important because it affects how much income is considered when determining the fees and charges for care. Properly understanding and planning for the income test can help manage the financial impact of aged care.
Case Study: Split by Health and Reunited
Consider the case of Eric, 85, and Wendy, 87, who own a home valued at $650,000. In June 2022, poor health made it necessary for Eric to move into aged care. Wendy remained in the family home, so the house was exempt from the assets test, and as there was no rental income, there was no impact on the income test.
In November 2022, Wendy’s increasing frailty also saw her entering residential care, fortunately in the same facility as Eric. Their former home was rented out and became assessable as an asset. As the value of the home is more than twice the current cap, they each have $138,668.80 included in their assessed assets. Under the income test, half the net rental income is applied to each of their assessments.
This example illustrates how changes in living arrangements and health can impact the financial aspects of care, highlighting the need for careful planning and understanding of the rules.
Seeking Expert Help
Aged care is a complex area requiring important decisions to be made at a time of high emotional stress. Remember that expert advice can help to reduce this stress. Make sure to talk to your qualified financial adviser early in the process of moving a loved one into aged care. It will make everything just that little bit easier for everyone.
In conclusion, navigating the financial aspects of care, particularly concerning the family home, requires a thorough understanding of both the assets and income tests. By seeking expert advice and planning ahead, you can ensure that your loved ones receive the care they need without unnecessary financial strain.
If you or a relative are looking at moving into care, find some great resources on aged care and finances at Services Australia.
