The villain on refundable aged care deposits isn’t who you think

Nov 23, 2018
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Forcing an aged care facility to hold on to a refundable deposit for as long as possible can produce a tidy return for an estate. Source: Getty

When someone moves into residential aged care, they have the choice of paying towards the cost of their accommodation by a lump sum, a daily payment or a combination. The daily payment is calculated based on a government set interest rate, currently 5.96 percent, on any unpaid lump sum.

Refunding of the lump sums, or RADs (refundable accommodation deposits) is a real pressure point between residents (or their estate) and aged care operators. While many people assume facilities want to keep their bond money for as long they can, it couldn’t be further from the truth.

What we are seeing is residents’ estates deliberately not claiming monies held by the facility and facilities almost forcibly refunding monies to the estate after residents leave.

What’s driving this counter logical behaviour? The high interest rate operators pay residents. While the operator can use the funds interest-free while the resident lives there, after the resident leaves, interest becomes payable. And the rate of interest is nothing to be sneezed at; 3.75 percent per annum if the bond is not refunded within the set time frame and 5.96 percent per annum after that.

So what is the set timeframe? Essentially, it is 14 days. If the resident moves back home or to another facility without notice, the 14 days start when the resident leaves. But if the resident leaves, providing 14 days notice, their deposit/bond is refundable on the day they leave. But in these circumstances the resident normally wants their refund ASAP – so everyone is happy.

The pressure point comes where it is not the resident, but their estate, that is due the refunded monies. Under these circumstances, the operator is required to pay interest at 3.75 percent per annum from the day after the resident leaves until they receive a letter of administration or probate. The 14 days then starts ticking and if they hold the funds for more than 14 days, they must pay 5.96 percent per annum beyond this.

The people advising the estate are often instructing the executor to leave the monies with the facility rather than place them in the estate’s bank account because the interest rate can be more than double what they can get.

But the aged care facility is in that boat too. To have enough liquid funds to meet their refunds when they fall due, such facilities keep monies in bank accounts and term deposits and which earn far less than 3.75 percent per annum. And so the tango begins.

Have you had to deal with a RAD? Was it refunded promptly?

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