Selling the family home is not the only way to pay for aged care, and it can sometimes be a costly mistake. Retaining your home may preserve capital and provide different exemptions under Age Pension and aged care rules. Understanding these complex rules before making a decision is crucial to managing your finances effectively.
Key Takeaways
- Your family home is generally exempt from the Age Pension assets test for up to two years after moving into aged care.
- The home may remain exempt from aged care rules if a protected person, such as a carer or close relative, continues to live there.
- The family home is only assessed up to a capped amount for the aged care means test, not its full value.
- Selling your home exposes the proceeds to aged care means testing, whereas keeping it can protect a substantial portion of its value.
- New Refundable Accommodation Deposit (RAD) exit fees mean providers can retain up to 10 per cent of your RAD if you remain in care for 5 years or more.
It can be a million-dollar decision, yet many families make the call without understanding the complex rules that apply to the family home for pension and aged care means testing. To understand how the family home fits into broader aged care funding, fees and means testing rules, it helps to first look at how aged care costs are assessed.
The Cost of Selling the Family Home
Many people assume selling the family home is the only way to fund aged care. After all, the Refundable Accommodation Deposit (RAD) can run into hundreds of thousands of dollars. If you don’t pay the RAD in full, the unpaid balance attracts interest at 8.43 per cent a year (indexed). On a $750,000 RAD, that is just over $60,000 annually, enough to make selling the home seem like a “no-brainer”.
But the truth is, selling the family home can sometimes be the most expensive mistake you make.
How the Age Pension Treats Your Home
Let’s start with the pension rules. Your home is generally exempt from the Age Pension assets test for as long as you or your spouse live there. If you move into aged care and keep the home, the exemption can continue for up to two years. For couples, the two-year clock does not start until the second person leaves the home.
After that period, you are assessed as a non-homeowner, which increases the pension asset threshold but means the value of the home is counted as an assessable asset.
Aged Care Exemptions for the Family Home
The aged care rules are different again. Like the pension rules, the home remains exempt while you or your spouse lives there. The exemption can also apply if a protected person remains in the home, such as a carer who has lived there for at least two years, or a close relative who has lived there for at least five years. In both cases, the person must qualify for an income support payment such as the Age Pension or Carer Payment.
Capped Assessment for Aged Care Fees
One of the biggest misconceptions is that the family home is fully assessed for aged care fees. It is not. Under current rules, it is only assessed up to a capped amount, $214,884, for the aged care means test.
For many families, this cap effectively exempts a substantial portion of the home’s value. A property worth $1.2 million, for example, could have almost $1 million excluded from the aged care assessment.
Sell the home, however, and everything changes. The proceeds used to pay the Refundable Accommodation Deposit (RAD) are exempt for pension but fully assessable for aged care purposes, while any surplus can count towards both pension and aged care means tests.
The Impact of New RAD Exit Fees
The newest piece of the puzzle is the introduction of RAD exit fees. Prior to 1 November, a Refundable Accommodation Deposit was exactly that, refundable in full when the resident left care. Under the new rules, providers can retain 2 per cent a year, up to a maximum of 10 per cent of the RAD, for residents who remain in care for five years or more.
On a $750,000 RAD, that can mean almost $75,000 of capital is gone.
By contrast, retaining the family home may preserve capital and potentially allow it to continue growing in value. Of course, keeping a property is not free and will not suit everyone. There are maintenance costs, insurance, rates and the very real risk that property prices will fall.
Seeking Advice Before You Act
The point is not that everyone should keep the home. It is that many people do not realise they have a choice.
There are special rules for the aged care means test, separate pension rules for your former home, and tax implications that can arise when a property is sold. Together, they can dramatically change the financial outcome of an aged care decision.
For years, the advice was simple: think twice before selling the family home. Today, with new RAD exit fees and increasingly complex rules, it’s worth thinking three times. And getting advice before you act.
Get Your Free Aged Care Options Report
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FAQs
Do I have to sell my family home to pay for aged care?
No, selling your family home is not the only option. Retaining your home can sometimes protect your capital and reduce your fees. Your home is only assessed up to a capped amount, meaning a significant portion of its value may remain exempt from aged care means testing.
How much of my home is assessed for aged care fees?
Your family home is only assessed up to a capped amount of $214,884 for the aged care means test. Any property value above this cap is completely excluded from your assessment. This rule can effectively protect a substantial portion of your wealth if you keep the home.
Does selling the family home increase aged care fees?
That depends, selling your home can increase your fees. The proceeds used to pay your Refundable Accommodation Deposit are fully assessable for aged care purposes. Any surplus money from the sale will also count towards both your Age Pension and aged care means tests.
What happens to my Age Pension if I move into aged care?
Your home is generally exempt from the Age Pension assets test for up to two years after you move into an aged care home. For couples, this two-year period does not start until the second person leaves the home. After this time, the home is counted as an assessable asset.
Can my home stay exempt if a family member lives there?
That depends, the home can remain completely exempt from aged care rules if a protected person lives there. A protected person is a carer living there for at least two years, or a close relative living there for five years. They must also qualify for an income support payment.
What are the RAD exit fees?
Aged care providers can now retain two per cent of your Refundable Accommodation Deposit each year. This is capped at a maximum of 10 per cent for residents who remain in care for five years or more. On a $750,000 deposit, this means $75,000 of capital is retained.
The information contained in this article is intended as general information only and does not constitute personal financial advice, legal advice or professional advice. While care has been taken to ensure the information is accurate and up to date at the time of publication, rules, rates and circumstances can change.
The information provided may not be suitable for your individual circumstances. Before making any decisions about financial matters you should seek advice from an appropriately qualified professional who can consider your personal situation.
