Estate planning gives you a final say
Our articles cover a range of topics which we hope you will find interesting. We aim to keep you informed of changes as they happen, but we also want to provide ideas to help you live the life you want – now and into the future.
In this edition, we look at the transition into aged care when it comes to family assets, when “Do-It-Yourself” might become problematic in a financial sense, and a short video summarising the market movements across the June-July period.
If you are interested in discussing the topics raised in this month’s newsletter, please don’t hesitate to contact us.
In the meantime, we hope you enjoy the read.
All the best,
The Wealthy Me Team
Moving into residential aged care can trigger a range of emotions, particularly if it involves the sale of the family home.
What is often a major financial asset, is also one that many people believe should be either kept in the family or its value preserved for future generations.
Whether or not the home has to be sold to pay for aged care depends on a number of factors, including who is living in it and what other financial resources or options are available to cover the potential cost of care.
It also makes a difference if the person moving into care receives Centrelink or Department of Veterans Affairs payments.
Centrelink determines the cost of aged care based on a person’s income and assets.i
For aged care cost purposes, the home is exempt from the cost of care calculation if a “protected person” is living in it when you move into care.
A protected person could be a spouse (including de facto); a dependent child or student; a close relative who has lived with the aged care resident for at least five years and who is entitled to Centrelink income support; or a residential carer who has lived with the aged care resident for at least two years and is eligible for Centrelink income support.ii
If the home is not exempt, the value of the home is capped at the current indexed rate of $201,231.iii
If you have assets above $201,231 – outside of the family home – then Centrelink would determine you pay the advertised Refundable Accommodation Deposit (RAD) or equivalent daily interest rate known as the Daily Accommodation Payment (DAP), or a combination of both.
The average RAD is about $450,000. Based on the current interest rate of 8.36% [note – this is the rate from July 1] the equivalent DAP would be $103.07 a day.
Depending on your total income and assets, you may also be required to pay a daily means tested care fee. This fee has an indexed annual cap of $33,309 and lifetime cap of $79,942.
This is in addition to the basic daily fee of $61.96 and potentially an additional or extra service fee.
There is no requirement to sell the home to pay these potentially substantial costs, but if it is a major asset that is going to be left empty, it may make sense.
Other options to cover the costs may include using income or assets such as superannuation, renting the home (although this pushes up the means tested care fee and can reduce the age pension) or asking family to cover the costs.
For someone receiving Centrelink or DVA benefits, there is an important two-year rule.
The home is exempt for pension purposes if occupied by a spouse, otherwise it is exempt for up to two years or until sold.
If you are the last person living in the house and you move into aged care and still have your home after two years, its full value will be counted towards the age pension calculation. It can mean the loss of the pension.
Importantly, money paid towards the RAD, including the proceeds from a house, is exempt for age pension purposes.
As the name suggests, the RAD is fully refundable when a person leaves aged care. If a house is sold to pay a RAD, then the full amount will ultimately be paid to the estate and distributed according to the person’s Will.
The decisions around whether to sell a home to pay for aged care are financial and emotional.
It’s important to understand all the implications before you make a decision.
Please call us to explore your options.
i https://www.myagedcare.gov.au/understanding-aged-care-home-accommodation-costs
ii https://www.myagedcare.gov.au/income-and-means-assessments
iii https://www.myagedcare.gov.au/income-and-means-assessments
“If you want something done right, you’ve got to do it yourself”
Not necessarily! The appeal of doing it yourself is understandable. There is a great feeling that comes with doing something that challenges you and with being resourceful and learning a new skill. However, there can be pitfalls to DIY and there are benefits from getting an expert involved sometimes.
We tend to be proud of what we create and place greater value on things we have made ourselves. There is a statistical difference between the dollar value someone places on something that they have built, compared to what another person would pay for it (this is for good reason known as the “Ikea effect” as it even applies to putting together flat-pack furniture).
With all the information we have at our fingertips, encouraged by the appeal of learning a new skill and guided by the power of Google and YouTube videos, we are emboldened to give things a go. Whether it’s fixing that dripping tap, troubleshooting the laptop that’s playing up or even investing your hard-earned dollars, DIY has never looked so easy.
The DIY mindset seems to be one that is on the increase. When we think of DIY we tend to think of home improvement and fixing things around the home. This market has increased by almost 10 million dollars in the last ten years.i The statistics reveal more than half of us are taking up the tools, with 55 per cent of homeowners deciding to take on home improvement and repair jobs rather than seek professional help.ii
DIY can be a lot more than just picking up a hammer though, and our love of DIY also extends to our financials. The search for additional income in an inflationary environment has seen an increase in traders keen to take the reins and invest for themselves. Over the past decade there has been a steady increase in the share of retail investors, with equity trades by a retail investor nearly doubling in volume from a decade ago.iii Equally, when it comes to getting ready for retirement the number of people setting up self-managed super funds (SMSFs) continues to rise, increasing by around 9 per cent over the past 5 years.iv
There is a lot more to lose if there is a problem with your financial situation than a tap that’s leaking though, so it’s important to think about what is at stake when you manage any aspect of your own financials.
The bottom line is you want to be getting the best outcomes and that does not always happen if you are taking a DIY approach. For example, when it comes to investing, a number of academic studies have shown that DIY investors tend to underperform the market and that underperformance ranges between 1% to 10% per year.v
The trick with any form of DIY is to do your research, understand the task and what’s involved, and acknowledge when you might benefit from a helping hand. There are times when it’s OK to have a go yourself and times when it makes more sense to get advice and support. You can still learn and gain skills that you can apply to future situations but it can make sense to maximise your efforts, while leveraging the skills of the experts.
When it comes to your financial life, whether it’s investing and growing your wealth, protecting your wealth, retirement planning or estate planning, there is a lot to know and consider, and consulting with an expert can really add value and help you avoid potential pitfalls.
Getting help does not mean being passive and not engaged, however. The best outcomes are achieved when we actively work together in partnership to achieve your desired outcomes.
There is a world of difference between totally going it alone and maybe floundering a little, and getting advice and guidance to reach the best outcome. So, if you want something done right, sometimes it is best to call in the experts! We are here to help.
i https://www.mordorintelligence.com/industry-reports/diy-home-improvement-market/market-size
ii https://blog.idashboard.com.au/2022/05/13/understanding-the-home-improvement-and-diy-market/
iii https://public.com/documents/2023-the-retail-investor-report
iv https://www.morningstar.com.au/insights/retirement/246207/smsfs-continue-to-thrive
v https://occaminvesting.co.uk/do-diy-investors-underperform/
Stay up to date with what’s happened in markets and the Australian economy over the past month.
Despite some signs of a weakening economy with stalling growth and a softening labour market, persistently high inflation is acting as a roadblock to the RBA’s possible rate cuts.
Markets have now priced in a risk that the RBA could hike rates as soon as the next meeting in August.
Australian shares finished the month close to where they started, with investor sentiment influenced by news of higher inflation and fears of another interest rate hike.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
Investech Wealth Management Pty Ltd ABN 21 489 748 259 trading as ‘InvesTech Wealth’ and ‘Wealthy Me’ is an Authorised Representative of Charter Financial Planning Limited, Australian Financial Services Licensee.
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