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What To Do With The Family Home .pdf


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What To Do With The Family Home After Changes To Aged Care Rules

Going into aged care is an emotional and often stressful decision because of
the associated costs and fees. Early this year, the journey to aged care has
become even more complex, with additional changes for the Age Pension
being implemented on 1 January 2017.
Before, Australian senior homeowners who entered aged care chose to keep
their family home and rented it out for additional income. This was a logical
strategy and it helped many seniors fund their retirement and aged care
needs. But this year, it will all change.

Adjustment to aged care fees
The recent years have been a roller coaster for the aged care community. The
government has been tightening rules and cutting budget for long term
sustainability. The calculation of means-tested fees for residential aged care
was number one on their list.
Beginning 1 July 2014, assets and income were both used when calculating
aged care fee. If you chose to keep your family home and rent it out, the rental
income is exempted from the assessed income if you paid your aged costs
partially, through DAP or daily accommodation payment.

This changed on 1 July 2016. Any rental income was counted and included in
the assessed income, even if you paid periodic payments. In effect, there was
no more incentive in choosing to pay through DAP than paying via lump sum.
These changes made new residents’ entry to aged care more difficult because
of higher fees. Although they faced a hard transition, the changes had no effect
in their Age Pension. Fast forward to 2017 and everything’s set to change.
Family home is now assessable for Age Pension
Before 1 January 2017, the family home was exempted from the Age Pension
asset test for two years as you entered aged care. If your home was rented,
you could have an indefinite exemption if you chose to pay your aged care fees
with periodic payments, such as DAP. In this scenario, both your family home
and rental income were exempted from the Age Pension asset and income
tests.
Today, new amendments to legislation include rental income in Age Pension
income test. This is when you decide to pay your aged care costs with a daily
payment rather than lump sum.
What to do with family home with new legislation changes?
The decision of whether to keep or sell the family home is becoming more
difficult because of the new legislation. Before, there were benefits in keeping
the family home since you got to enjoy additional income from rental
payments when you paid periodic payments. Today, the decision will not be as
easy as that.
Keeping the family home can still be an option for new residents, but they will
need to work out the costs and make sure that any potential income
outweighs the cost of possible loss of some of their Age Pension.


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