When greedy family members diminish quality of life

The attitude people have towards mum’s or dad’s money can get in the way of older Australians receiving the care they need in their last years.

Family members may say they are happy to throw whatever resources they have to keep loved ones at home or in the aged care home of their choice. But when it comes to the crunch, it can be a different story.

The impact that spending money late in life may have on a potential inheritance can influence whether or not a person receives the care they want – or need.

Whether it is care in the home or in a residential facility, it makes sense to explore the different ways it can be paid for. The way the aged care system is structured allows you to afford the place you want, even with a few assets. However, the multiple ways to pay for aged care makes the decision a difficult one for many people. Spending on care can ultimately mean less back to the estate.

With government-subsidised residential care, anything paid towards the refundable accommodation deposit (RAD) can be used to help cover some of the fees and charges associated with living there.

If you are trying to fund care in the home privately, then the equity in your house can be used to buy in additional help.

In residential care, the advertised market price for a room (the RAD) might be $650,000, but that doesn’t mean you have to have that amount sitting in the bank ready to hand over before you move in.

What you don’t pay towards the RAD is charged as a daily interest rate (the daily accommodation payment or DAP) which can then be drawn from the RAD.

For example, if the RAD is $650,000, you might pay $200,000 towards the $650,000. This would result in a daily accommodation payment of $49.80 on top of the basic care and means-tested care fees.

Based on the current interest rate of 4.04 per cent charged by the facility on the unpaid RAD, the $200,000 could fund your accommodation for 10 years – less if you also use it to pay for other fees, including the means-tested care fee or additional service costs.

The RAD is fully refundable to the estate, less any costs owing to the facility.

This option can be a good way to buy into a place of choice, particularly if it has a high RAD and other fees. However, the move depends on who is making the decisions regarding paying for care.

Recent research from the University of South Australia indicates that spending an inheritance is neither here nor there for many older and younger Australians.

Those needing to spend the money on themselves at the expense of their kids are happy to do so.

Likewise, the kids are saying no one owes anyone anything, so mum and or dad should spend away.

The premise of the research from UniSA’s Australian Alliance for Social Enterprise was that an apparent laissez-faire attitude towards wealth transfer opened the way for a fresh discussion on the reintroduction of an inheritance tax.

Among a sample of young adults and senior Australians, two-thirds thought Australia should consider reintroducing taxes on estates worth more than $3 million, while only one in 19 were definitely opposed, says social policy expert Veronica Coram.

That may be the case for estates of that magnitude, but the attitude towards mum or dad’s money can be very different with much smaller estates, or when someone has been counting on an early inheritance to help out financially.

Patricia (not her real name) is 89 and living alone in her own home. Socially isolated and no longer able to cook a proper meal or keep the house clean, she has decided to look at some residential care options.

She looks at three and settles on the one closest to where she has been living.

The room she likes has a RAD greater than the value of her home, which she is resigned to selling as there is no longer a need for it. She is almost excited at the prospect of a move to a place she has chosen.

Her income will pay most of her care costs, but in order to leave her something to live off, the only option she has is to draw the accommodation and additional service costs from the contribution she makes towards the RAD once the house is sold.

Her plan looks straightforward until the family looks at the sums and realise that depending on how long their mother lives, they could be missing out on tens of thousands of dollars.

They scramble to look at ways she could keep the house so that they inherit an appreciating asset, or if the house has to be sold, the amount realised will cover the RAD. At least this way the RAD paid will be refunded in full.

Their “aha moment” is finding a facility with a much lower RAD in an area with which she has no connection. The room is older and smaller and without the additional hotel-like services she was looking forward to.

Unhappy with the proposed move to somewhere she doesn’t like, Patricia is still living in her own home paying for some basic services while she waits for a government-subsidised home care package to fill in some gaps.

She is still lonely and unable to get the help she needs to prepare meals, clean the house etc.

When a friend suggests she looks at using the equity in the home to employ people privately to deliver all the help she needs to remain living independently in her own home, the family again intervenes.

It could mean inheriting a house with money owing on it or eating away at existing savings.

Australia is on the crest of a massive wave of wealth transfer between generations – an estimated $2.6 trillion between 2021 and 2040.

A large number of people who have accumulated this wealth should be able to spend whatever they have on ensuring their last years are good ones, unencumbered by greed and the interference of family members.

Bina Brown, Third Age Matters