Selling the family home and navigating aged care costs
The transition of a parent or relative into residential aged care can be one of the most emotionally and financially challenging moments a family will face.
Beyond the personal upheaval, a number of issues need to be dealt with quickly including how to fund the Refundable Accommodation Deposit (RAD), how to cover daily care fees and what to do with the family home.
On the plus side, selling the home can suddenly transform someone’s financial position from “cash poor” to “cash rich”. But for those relying on the Age Pension, the sudden spike in assets has major implications for pension eligibility, aged care means testing and ongoing fees.
Understanding how the rules work can make all the difference in turning a potentially damaging financial outcome into a sustainable aged care funding solution.
Making the move
Usually, a person’s home is exempt from the Age Pension assets test but once it’s sold, the cash is then assessed as an asset and that may reduce the pension payments.
There are a number of exemptions to this rule. For example, if you leave your home to enter aged care due to illness, your home may be exempted from the assets test for up to two years. And, it won’t be counted as an asset if your partner is still living there.i
In addition to the Age Pension means test, the types of fees and how much you pay for an aged care home bed also depend on an assessment of your income and assets. The aged care means test considers both your income and assets to determine how much government subsidy you receive and what you will pay in care fees.
Options for managing the proceeds of a sale
Once the family home is sold, the sudden boost in cash can feel overwhelming. But, with good advice, the funds can be used to improve cashflow, reduce ongoing costs and preserve as much of the pension and aged care subsidy as possible.
Here are some of the options:
1. Paying the refundable accommodation deposit (RAD)
Paying the full RAD means you don’t pay the daily accommodation fees (DAP), which can be hundreds of dollars per day. But, be aware, that a refundable lump sum is counted as your asset in the aged care means assessment, even if it is paid by a family member. This means that paying a lump sum can affect your fees. On the other hand, a RAD may improve Age pension eligibility for some people. ii
2. Paying a part RAD and part DAP
It doesn’t have to be all or nothing. You could pay some of the accommodation deposit and then pay a reduced daily fee. The advantage is that you have access to the cash for living and medical expenses.
3. Making a downsizer super contribution
For those aged over 55, up to $300,000 can be contributed to super after selling the family home, which may be a more tax-effective environment. There is no maximum age on making a downsizer contribution despite normal super rules preventing most voluntary contributions after age 75.
Your super balance is also assessed as part of the means test for both the Age Pension and aged care fees.
4. Renting the home instead of selling
This option might suit those who want to keep the property in the family. While the rental income will be counted as part of the income test, depending on how you pay for your aged care accommodation, there may be some exemptions from means testing.
In a nutshell, selling the family home can affect both the Age Pension and aged care means testing, increasing costs and reducing entitlements.
The key is in using the new funds wisely. With careful planning, families can navigate this transition in a way that protects income, manages fees and ensures the person entering aged care has the resources they need.
With so many complex and time‑sensitive decisions to make during an already emotional period, getting the right advice can be critical in helping families make informed choices and avoid costly mistakes. Please give us a call if you’d like more information.
i Real estate assets - Age Pension | Services Australia
ii Understanding aged care home accommodation costs | My Aged Care