This is an update of an article last updated in July, 2013. This update addresses recent changes in legislation.
Louise Biti
Too often articles and information published on aged care focus on how to reduce the accommodation bond. Many clients (and their families) will also express a reluctance to pay the high bonds required.
The opportunity to initially agree on a low bond can give you a stronger negotiating position to create a positive outcome with fee trade-offs or higher investment earnings. But too much focus is arguably placed on trying to reduce assessable assets to limit the maximum bond payable.
Bond negotiations
The most important aspect of aged care is securing a place in the facility of choice. Strategies that reduce assets or undervalue assets reported may only result in losing the place, or never receiving an offer from the facility of choice.
Most facilities set a target bond range for new residents. This can be influenced by a range of factors, one of which may be how much the client has in assessable assets. It can be difficult to obtain an estimate of the bond from the facility without first providing asset details for the client.
The only rule in legislation in relation to the level of bonds is that after paying the accommodation bond the client needs to be left with at least $44,000 in assessable assets. But what does this mean in practice? And what can go wrong? After all, the rule is designed to ensure that aged care is affordable and the fees for each resident are based on their level of assets and income.
The steps for keeping bond negotiations in perspective are:
Step 1 = What will it take to be offered a place?
Step 2 = Can the person afford this bond?
Step 3 = Does the fee represent value for money?
To see how these steps apply in practice, let’s review the case study below for Faye.
Faye’s dilemma – case study
Faye has become too frail to continue living in her home. She has an Aged Care Assessment Team (ACAT) approval to move into low care. Her daughter Caroline would like Faye to move into a residential facility near her home so it is easy to visit each day.
Caroline has spent time investigating options in her local area and has decided on a facility five minutes from her home. It has a very good reputation and is quite new.
Now, comes the difficult part with negotiating the bond.
This is a new facility and is carrying significant levels of debt used to fund the purchase of land and the building construction. The accommodation bonds are set at a minimum of $500,000 but range up to $650,000 depending on circumstances such as the resident’s level of assessable assets and the size of the room.
Faye’s only assets are her home in a regional town which is valued around $360,000 and $40,000 in the bank. Her home contents are valued at $5,000 and she does not own a car.
The ACAT team left Faye a copy of the government’s booklet and pack – 5 Steps to Entry to Residential Aged Care. This pack included the Centrelink asset assessment form which Faye completed and sent to Centrelink.
Centrelink will verify the information in the form to calculate her level of assessable assets and the maximum bond she is eligible to pay. The maximum bond is calculated as the assessable assets less $44,000 (figure relevant for entry up to 19 March 2014).
Faye lives alone so her home is counted as an assessable asset for the bond calculations. This puts her assessable assets at $405,000. She receives a letter from Centrelink stating the maximum bond she can pay is $361,000.
A week later, Caroline receives a phone call to say that a place has become available and an appointment is made to discuss the opportunity for her mother to move in. Caroline takes the Centrelink letter to help with her negotiations.
However, this may not result in the outcome Caroline is hoping for. The facility is firm that the minimum bond is $500,000. To admit Faye, they would need to accept a lower bond. As a result, the facility withdraws their offer and offers the place to another potential resident who has a greater level of assets.
This outcome is not dissimilar to the situation with selling a house. If the seller wants a price of $500,000 and the potential buyer can only borrow enough to pay $361,000 the seller does not have to accept this price. They can choose to either drop the sale price to accept the offer or discontinue negotiations and look for a new buyer. The same has happened in this case.
Just because the legislation sets Faye’s maximum bond at $361,000 does not mean the facility has to admit her for this bond level. It just means that if they choose to admit her they do so under an agreement to accept the lower bond.
What could Faye and Caroline have done?
Let’s go back to the steps outlined earlier in this article and review how they may have applied to Faye.
Step 1 = What will it take to be offered a place?
When researching suitable facilities it is important to gain an indication of the bond level required and to understand what flexibility exists in negotiations.
This can be difficult as many facilities are reluctant to quote a bond until they have an indication of the person’s assets. The best strategy is to have an open and honest discussion with the facility. In reality, if Faye had disclosed the level of assets when she put her name on the waiting list she may never have received the call with the offer of a place.
Tip: Newer facilities are likely to be carrying higher levels of debt. This generally means higher bonds and less flexibility to accept a lower bond.
Step 2 = Can the person afford this bond?
In this case, Faye does not have sufficient assets to pay a bond of $500,000. Her family may need to consider whether they can afford to contribute part of the bond if they want to get her into this facility. But do they still have this opportunity when she already has a Centrelink assessment?
If an offer of a place is made and accepted, the person will be asked to sign a Resident Agreement. This is a legal contract between the facility and the resident. It sets out a range of issues including the agreed bond. The bond therefore needs to be paid by the resident, in this case Faye. It cannot be paid directly by anyone else to the facility as the facility is unable to enter into contracts with anyone but the resident.
One solution may be for the kids to gift or loan the money to Faye and deposit it into her bank account before she moves to the facility. She can then request a new assessment from Centrelink based on a change in her circumstances. This strategy is not guaranteed to work as we have seen cases where Centrelink have denied a request to reassess assets within a short period of time.
Gifting/loaning money into Faye’s account will increase her assessable income and assets but she has 14 days to report the change to Centrelink for pension purposes. If the bond is paid within this time it will not impact her age pension payments.
If children are looking at contributing all or part of the bond, the best option may be to not fill in the Centrelink assessment at all, or at least not until after the gift/loan is made to the parent. The Centrelink assessment is optional to obtain, although some facilities will require it before entry.
If the facility agrees, instead of obtaining a Centrelink assessment the person can sign a statutory declaration stating they have sufficient money to pay the requested bond and will be left with at least $44,000 after paying the bond.
If the money from the kids is a loan, they should seek legal advice about drawing up a loan contract so that the money can be recovered from the estate when the bond is repaid. Entering into a loan contract may only be possible if the parent still has full legal (mental) capacity.
Step 3 = Does the fee represent value for money?
While Step 2 has worked through a solution to ensure she can afford to pay the bond, Faye and her family should determine whether the bond represents value for money to them.
What other options might exist for facilities that will accept a lower bond? Are those facilities comparable or is the lower bond coming at the cost of a desirable feature? This is a personal choice and is very similar to how we choose where we will buy a house.
Supported residents
Legislation did not really help or protect Faye, but there are some protection mechanisms for people with very low levels of assets.
Every government-subsidised aged care facility is required to take a minimum number of supported residents. This quota is 15-40% of all subsidised places depending on the socio-economic demographics of the area.
Supported residents are those who have less than $113,784 (current to 19 March 2014) of assessable assets when moving into aged care. These people still need to be left with $44,000 of assets after paying a bond and may incur a lower retention amount (if the bond is less than $39,720).
It is important to understand that the quota applies across all places in the facility. If the facility has both low care and high care places the facility may only take supported residents into high care places. It can therefore still be difficult to secure a low care place even if you are a supported resident.
Helping clients understand bonds
It should also be remembered that bonds are not all bad. Helping clients to understand the implications of bonds may help them to be comfortable with paying the bond.
- Bonds are ggovernment guaranteed
- Bonds are exempt under the Centrelink/Veterans’ Affairs income and assets tests and can help to maximise age pension and minimise daily care fees
- The bond is not a true fee, but rather is a refundable deposit. Each month the facility can deduct $331 (up to a total of $19,860 over a five year period) and the rest of the bond is refundable when the resident leaves or passes away
- Bonds are held in trust by the facility – this can help to protect the estate.
The average new bond is continuing to increase and facilities currently hold over $11 billion in bonds. Bonds are payment for the right to live in the facility and residents have security of tenure for the rest of their lives.
Building your business
There is widespread recognition that clients are ageing at a rate we’ve never experienced before. Older clients and their families are thinking about their future aged care needs and are looking for services to guide the process.
This provides professionals (including financial planners, lawyers and accountants) who service clients of all ages with business growth opportunities to help clients and their families navigate through aged care decisions, to ultimately give them lifestyle choices in the latter part of their life. It also provides a great opportunity to market to pre-retirees, who are the children making the decisions for their parents.
By Louise Biti – Article current 1 December 2013 to 19 March 2014
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Disclaimer: The information contained in this publication is based on the understanding Aged Care Steps Pty Ltd has of the relevant Australian legislation as at the date shown in this publication. The information contained in this publication is of a general nature only and is intended for use by financial advisers and other licensed professionals only. It must not be handed to clients for their keeping nor can any copies of sections of this publication be given to clients. Aged Care Steps is an authorised representative of Strategy Steps Pty Ltd ABN 14130045242 AFSL 333649 and is not a registered tax agent under the Tax Agent Services Act 2009. We recommend that your client be referred to their registered tax agent or legal adviser prior to implementing any recommendations mentioned in this publication.
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