The family home is a special case in retirement and aged care planning. Many people faced with the prospect of a stay in an aged care facility will also be faced with a decision: what to do with the family home that they are moving out of?
We suspect that we have a different view of the family home than many financial advisers. Basically, we recognise family homes as the cornerstone of most people’s wealth. So, our starting point is that the family home should usually be retained whenever possible.
That said, no two clients are the same. Each situation needs to be taken on its merits. The following points discuss the interplay of the family home and aged care planning and talk to general themes that need to be addressed in financial planning for aged care.
Benefits of retaining or selling the family home
The potential benefits of retaining a family home when you or a loved one move into an aged care facility include:
- Reducing the asset base for calculating the means-tested care fee payable;
- The retention of an asset from an asset class that has traditionally done as well or better than any other asset class;
- The ability to borrow against the home;
- The ability to derive rent from the home;
- Maintaining exposure to capital growth in cases of relatively long stays in residential care;
- Maintaining wealth in a CGT-free investment type;
- Personal wellbeing benefits from knowing that the family home has been retained; and
- Potential compatibility with inheritors’ plans (that is, your inheritors may well inherit more if you keep the family home for longer. Please note, the potential for elder abuse needs to be assessed whenever the best interests of someone other than the elderly person are being considered).
The potential benefits of selling a family home include:
- Being able to pay cash for the Refundable Accommodation Deposit (‘RAD’) required by most homeowners when entering an aged care facility;
- Achieving an effective rate of return of 6.14% when paying the RAD as a lump sum. This is a technical point: if you do not pay the RAD as a lump sum, you have to pay an amount equal to 6.14% of that lump sum;
- Avoiding the need for complicated financial management, such as the use of reverse mortgages or the management of a tenancy;
- Freeing up cash flow to be used for other lifestyle choices, such as paying for extras in the aged care facility; and
- Simplifying affairs, especially in cases where there are multiple people affected by any decision.
Which should I choose?
There is no right or wrong answer here. Each situation needs to be addressed on its merits. If you or someone you know are faced with the prospect of a stay in an aged care facility, we suggest that you contact us and we would be happy to work through the issues for and with you.