Your parents are getting older and your mum’s health is declining at a rapid rate, and after much discussion it’s decided she’ll move into an aged care facility. But what does this mean for their financial situation and how much will they have to pay for care?
Unfortunately, there is no straight answer and it depends on the individual situation. When a couple part ways upon moving into aged care, for all government purposes they are generally considered illness separated.
This means they are unable to live together because of an illness and/or some sort of physical or mental condition. Though it may seem unimportant how they’re referred to, according to aged care expert Rachel Lane, it can make a huge difference to the amount they pay for aged care and pension payments received.
Generally, the government expects Australians to pay for some or all of their own aged care accommodation, unless they can’t afford it. To determine the cost, an income and assets test is carried out. This is where all sources of income and financial assets are assessed.
Currently, if you have income below $27,460 a year and assets worth less than $49,500 (including the family home), the government will pay for your residential aged care accommodation. And if you have income above $69,430 or assets worth more than $169,079.20, you’ll need to pay for the full cost. Meanwhile, if you fall between these bands, the government will pay for part of your accommodation.
When classified as an illness separated couple, your assets and income are still assessed jointly, with half of the combined assets and income assessed against each other. Lane says it’s not relevant who owns what, it’s just ‘what’s yours is mine’.
Under this classification, there is one exemption from aged care cost assessments, and that’s the family home. But only if a protected person – such as a spouse – is living there. Meanwhile, for pension purposes the home is exempt for as long as one member of the couple lives there and then for two years after they leave.
For some this can prove beneficial, but Lane says others might want to consider classing themselves as living separately and apart. According to Services Australia, generally, there needs to be a physical separation as well as an emotional separation between the couple for it to apply.
For example, if one member of the couple has entered a care home on a permanent basis due to a severe or debilitating illness, such as Alzheimer’s. A person with this condition wouldn’t be able to contribute to a relationship physically, mentally or emotionally.
If your parents fit into this description they could be classed as living separately and apart. The benefit of this is that they can be assessed based on what they each have, rather than half of the combined assets and income.
And just because they have this classification doesn’t mean they have to divorce. They can still visit each other on a regular basis and provide financial support if necessary.
However, Lane says this option isn’t for everyone and you must be careful about the assessment of the home in particular.
“Where the person moving into care has significantly less wealth, the benefit is that they are only assessed on what they (as an individual) have – rather than having half of the other person’s wealth attributed to them,” she says.
“But under this definition the spouse (unless they meet another definition such as a carer) is not a protected person and so if the person moving into care owns half the home their share up to the capped amount of $169,079 can be assessed as an asset for aged care and likewise their share of the home would be assessable for pension purposes after two years.”
All in all, it depends on the couple’s financial situation and Lane advises looking at your individual situation carefully to determine what’s best.
“Beyond the home exemption for the spouse, if the person moving into aged care has greater wealth than the person staying at home then remaining assessed as an illness separated couple (where you get to share the wealth across two people) could mean that the cost is lower,” she says.
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