You’re meeting with a client who needs aged care advice and you want to help them make a confident decision. So what should you discuss with them?
In this month’s Challenger Tech article we simplify the aged care discussion into six key areas and outline some of the main discussion points.
1. Personal details
To start with, you’ll need the client’s personal details such as date of birth and relationship status. You may already have this information from the fact find process.
The client’s date of birth is important as it influences the income and assets assessment for social security and aged care purposes, as well as the Challenger CarePlus payment rate.
It’s also important to have a clear picture of any Centrelink and the Department of Veterans Affairs (DVA) payments the client is receiving.
Q. What type of income support payment is the client receiving?
What rate of payment are they receiving? Clients may be receiving multiple payments and each one can have different implications for the aged care income test.
2. Care information
Q. When did the resident first enter residential aged care?
With recent rule changes to the aged care assessment, there are now four main entry date ranges that could have different impacts on aged care costs:
- Entered before 1 July 2014 – Residents were generally required to pay an incometested fee (ITF) based on their assessable income. In addition they may have paid an accommodation charge or accommodation bond based on the level of care required and their level of assets on entry.
- 1 July 2014 - 31 December 2015 – Aged care reforms replaced the ITF with a means-tested care fee (MTCF). This expanded the income assessment to include an asset assessment and residents were given more accommodation payment options.
- 1 January 2016 - 31 December 2016 – The aged care means test assessment was expanded to include rental income from the former home for new residents. For residents who entered before 1 January 2016, it may be exempt if a daily accommodation amount is being paid.
- From 1 January 2017 – Assessable income for Age Pension purposes now includes rental income from the former home for those who are new to aged care. For residents who entered prior to this date, rental income is exempt for Age Pension purposes if a daily accommodation amount is being paid.
In addition the indefinite home exemption no longer applies to new residents, meaning the former home will count for Age Pension once the automatic two-year exemption finishes. This change will impact the client’s Age Pension entitlement and therefore may affect their MTCF.
Determining the non-means tested costs your aged care client has to pay will help illustrate your client’s cash flow outcomes.
Q. What costs does the facility charge?
• Accommodation costs?
• Additional or extra services fees?
These costs charged can vary across facilities, therefore it’s important to confirm the cost the client will pay.
It’s important to note that the Basic Daily Fee (BDF) is a set amount for all residents, and the MTCF is calculated based on the resident’s income and assets.
You can also check what the client has paid in the past, as previously paid MTCFs or home care ITFs will reduce a person’s lifetime cap.
For clients who are about to enter aged care, you can assist with negotiating the accommodation payment amount and/or extra services fees – this may help with future cash flow.
For prospective low means residents, finding out a potential facility’s daily accommodation supplement amount is important because a low means resident’s Daily Accommodation Contribution (DAC) is capped at the respective supplement amount.
TIP: Care information can be entered into section 2 of the Challenger aged care calculator. When modelling a scenario with an ‘amount being paid as a lump sum, RAD’, make sure to reduce other assets by this amount. The total assets input, including the RAD paid, should equal the client’s total portfolio value.
3. Home information
For some clients, the decision to keep or sell the family home after entering residential aged care is a big one. Uncovering information regarding the home is imperative for aged care discussions. Decisions regarding the family home can have a big impact on your client’s cash flow, Centrelink entitlement and aged care fees.
Q. Did anyone live with the client just before they entered aged care?
If the answer to this is yes, you’ll need to find out if the person who lived with the client is a ‘protected person’. This will help determine whether the property is exempt for aged care purposes or is assessed up to the home cap amount.
A protected person includes a dependent child or a spouse. A carer or close relative (e.g. a parent, sister, brother, non-dependent child or grandchild) can also be a protected person if they are eligible to receive an income support payment (e.g. Age Pension, Disability Support Pension, Carer Payment, Newstart Allowance, etc.) and have been living in the home for at least the last two years (for a carer) or five years (for a close relative).
Q. How would the resident/family feel about renting out the former home?
• Is the home in a rentable state?
• If not, how much would it cost to get it to a rentable state?
• When was the home vacated?
The family home can be a sentimental asset. Sometimes a client may not want to sell or rent it, so it’s important to understand their feelings. Renting the home can help your client’s cash flow considerably, but sometimes the home may be in need of a refresh to get it to a rentable state.
TIP: Advisers can enter clients’ home information into section 3 of the calculator.
4. Income and assets
Information from the initial fact find will help determine the client’s Age Pension entitlement, whether they are a low means resident or an accommodation payment resident, and what their MTCF could be.
Special consideration may be needed for more complex income streams such as defined benefit income streams, grandfathered account-based pensions and/or asset-test exempt income streams.
Ask for a Centrelink schedule for each income stream; this will have the information you need to calculate the deductible amount and assist with modelling a scenario accurately.
Challenger Tech can provide assistance with queries regarding the Centrelink assessment of different income streams, contact us on 1800 176 186 or firstname.lastname@example.org.
TIP: Advisers can enter a client’s income and assets into section 4 of the calculator. For assets such as cash, shares and property, you can update the income and growth settings accordingly. When modelling a CarePlus investment, make sure to reduce other assets by the amount invested in CarePlus. The total assets input, including CarePlus, should equal the client’s total portfolio.
5. Annual expenses
Aged care costs are not necessarily the only expenses a client will have while in aged care.
Q. What expenses does the client expect on top of aged care fees? Expenses such as gifts to the grandkids, hairdressing, day trips for those who are more active and pharmaceutical costs, may not be included in a person’s residential aged care services. These costs are often overlooked but are important when considering cash flow, especially when there is one member of a couple still at home.
TIP: Weekly expenses can be entered into section 5 of the calculator. Challenger Tech commonly sees small amounts such as $50 or $100 per week entered when there is no spouse at home.
6. Illustrating the outcome
The information on the previous page allows an adviser to assess a client’s aged care position. To determine an appropriate strategy, an adviser must uncover the client’s goals and objectives.
Q. Is lifestyle or cost more important for your client in aged care?
For example, accommodation payment residents are likely to have a greater choice of accommodation than low means residents.
Q. What level of care is needed for your client?
Understanding the health needs of your client can help you plan for their time in aged care and assist the family in making appropriate decisions for their care.
TIP: The Challenger Aged Care Calculator can be used to compare an investment in Challenger CarePlus with an investment in a term deposit and also an investment bond in a trust. Advisers can compare other strategies, for example keeping the home with selling the home, by running two calculators. The best results to compare between versions of the calculator are the ‘Cashflow analysis’ and the ‘Estate value upon death’ within the Analyser.
Assisting clients through their entry to aged care, or liaising with clients already in a facility, are opportunities for advisers to provide value. This may require consideration of the client’s cash flow goals and how this balances with their estate planning goals. Knowing what to ask and the ability to accurately apply aged care information for modelling purposes will help you identify ways to improve client outcomes.
If you have an aged care client and would like some assistance, please contact your Challenger BDM for support.
The information contained in this update is current as at 4 April 2017 unless otherwise specified and is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger). It is intended solely for licensed financial advisers and must not be passed on to retail clients. The information is not intended to be financial product advice and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should, therefore, consider its appropriateness having regard to these matters. Neither Challenger nor its related bodies corporate nor any of their employees receive any specific remuneration for any advice provided in respect of a product. Some or all of Challenger group companies and their directors may benefit from fees and other benefits received by another group company. Any taxation, Centrelink and/or Department of Veterans’ Affairs illustrations are based on current law at the time of writing which may change at a future date. Neither Challenger, nor any of its officers or employees, is a registered tax (financial) adviser under the Tax Agent Services Act and is not licensed or authorised to provide tax or social security advice. Before acting, we strongly recommend that prospective investors obtain financial product advice, as well as taxation and applicable social security advice from a professional and registered tax agent who can take into account the investor’s individual circumstances.