Assessment Of The Former Home When Entering Into Aged Care?
Written by: Samantha Butcher l Advisory Team
A question we are asked every day by our clients, who are looking to enter aged care, is “What happens to our family home?” It is a key consideration for many of our clients when they are moving into residential aged care.
Where the home is retained, its assessment can determine our client’s Age Pension entitlements, means-tested care fees and whether the individual will be classified as a low-means resident and receive Government support for their accommodation costs.
Where the home is sold, the proceeds are assessable based on how they are invested or used.
Whilst the general rules for the social security and aged care assessment of the former home can be simple for many situations, its application in other cases can be less clear and more complex.
So, let’s recap the general rules for the social security and aged care assessment of the former home as well as the applications of various scenarios and family arrangements to be able to give you a general understanding of what happens!
Former Home Assessment – General Rule
The former home is assessed separately for social security and aged care means testing.
For social security purposes:
- The former home is not assessed where it is being occupied by a spouse, with the couple (separated due to illness) considered homeowners in these situations;
- Where the former home is not occupied by a spouse (for example, singles), the former home is still considered the individual’s main residence for a period of two years from the date they vacated the home to enter residential aged care. The former home is not assessed for that two-year period and the individual is considered a homeowner. After this two-year period, the individual is considered a non-homeowner and the net value of the home is assessed under the assets test; and
- Net rent (or two-thirds of the rent income where a tax return is not available) is assessed as income if the former home is rented out.
For aged care means testing:
- The former home is not assessed where it is occupied by a protected person;
- Where the former home is not occupied by a protected person, the net value of the home is assessed up to the ‘home cap amount’ of $175,239.20. The value of the home above the cap amount is ignored for aged care purposes; and
- Net rent (or two-thirds of the rent income where a tax return is not available) is assessed as income if the former home is rented out.
A protected person for aged care purposes is:
- Spouse or de facto;
- Carer who has lived in the home for at least the last two years and is receiving or eligible to receive a qualifying income support payment;
- A close relative (a parent, sibling, child or grandchild) who has lived in the home for at least the last five years and is receiving or eligible to receive a qualifying income support payment; or
- Dependent child aged under 16 or a full-time student if over 16 and aged under 25.
If the Spouse Predeceased the Individual or Also Enters Residential Aged Care
In some cases, the person who entered residential aged care outlives their spouse. Where this occurs or where the spouse later enters aged care, the assessment of the former home changes slightly.
For social security purposes:
- The two-year exemption period commences from the date of death of the spouse or the date the second spouse enters aged care. After the exemption period, the couple is assessed as non-homeowners.
For aged care means testing:
- Where a protected person (for example, the spouse’s carer who has been living in the home for the last two years and is receiving the Age Pension) remains in the former home, the home is not assessed for both members of the couple in aged care.
- Where the former home is not being occupied by a protected person, the net value of the home is assessed up to the home cap amount for each member of the couple.
Retirement Planning When The Spouse Downsized + Moved To A New Home, Closer To The Aged Care Facility
Where the spouse sells the former home (home A) and purchases a new home (home B), the new home becomes the former home and the social security and aged care assessment is based on the general rules above (refer to the above section, ‘Former Home Assessment – General Rules’).
This is also the case in the scenario where the spouse predeceases the individual in aged care after moving into home B. Whilst the individual in aged care had not occupied home B in the past, it is still considered their main residence as it was their spouse’s main residence.
Former Home Was An Interest In A Retirement Village
Residents of retirement villages or those living in independent living units generally enter into an agreement that outlines how much they will need to pay to enter and the amount (if any) refundable after they leave. This agreement generally provides the resident with the security of tenure in the retirement village.
The amount paid to secure a place in the retirement village (known as the entry contribution or EC) is compared to the Extra Allowable Amount (EAA) at the time of entering to determine whether the individual or couple is a homeowner or a non-homeowner.
If the entry contribution is less than or equal to the Extra Allowable Amount (currently $216,500), the individual or couple is considered a non-homeowner and the EC is assessed under the assets test (but not the income test). If the Entry Contribution is greater than the Extra Allowable Amount, they will be considered homeowners and the EC exempt from the assessment.
Upon entering aged care, the social security assessment is as follows:
- Where the individual or couple was considered a homeowner (EC was greater than EAA), the above general rule for the social security assessment of the former home applies until the retirement village is sold or the arrangement has ended i.e. where the spouse remains in the retirement village, it continues to be exempt. Where no spouse occupies the retirement village, the two-year exemption period applies.
- Where the individual or couple was considered a non-homeowner in their retirement village arrangement, they will continue to be considered non-homeowners for social security purposes after entering aged care and the EC is assessable until the retirement village is sold, or the arrangement has ended.
For aged care means testing:
- Irrespective of whether the individual was classified as a homeowner or non-homeowner for social security purposes, the amount refundable to the individual is subject to the above general rules for the aged care assessment of the former home. The general rules will apply until the retirement village is sold or the arrangement has ended.
Investment Management For The Former Home That Was A Centrelink/DVA Granny Flat Arrangement
Centrelink/DVA granny flat arrangements are generally family arrangements where the individual or couple pays or transfers assets to a family member in return for a life interest or right to occupy a private residence for life.
The amount paid or agreed to be paid for the granny flat interest is considered the Entry Contribution (EC). Similar to the retirement village arrangements, if the Entry Contribution is less than or equal to the Extra Allowable Amount (EAA), the individual or couple is considered a non-homeowner and the Entry Contribution is assessed under the assets test (but not the income test). If the Entry Contribution is greater than the Extra Allowable Amount, they will be considered homeowners, and the EC is exempt from assessment.
Upon entering aged care, the social security assessment is as follows:
- When an individual or both members of a couple enters residential aged care, their granny flat arrangement generally ceases, and they are assessed as non-homeowners. Additionally, as nothing is generally refunded, there is no further assessment of the Entry Contribution.
- For members of a couple where their spouse remains in the granny flat arrangement, the homeownership status remains the same as the homeownership status prior to the individual entering residential aged care. Non-homeowner couples will continue to have the amount paid for their granny flat arrangement assessed under the asset test.
For aged care means testing:
- For individuals or couples whose granny flat arrangement ends on entering residential aged care and no amount is refunded to them, they will be assessed as non-homeowners for aged care purposes and no amount is assessed.
Understanding Financial Goals For The Former Home Has Adjacent Land Greater Than Two Hectares
Generally, the home and up to two hectares of adjacent land can be exempt from assessment under the social security main residence exemption.
Subject to meeting the required eligibility requirements (including being on the same title), land greater than two hectares can also be exempt from assessment under the extended land use test. If the excess land cannot be exempted, the value of the excess land is assessed under the assets test.
Upon entering aged care, the social security assessment is as follows:
- If the land above two hectares is exempted under the ended land use test prior to entering aged care, the whole property is assessed based on the general rules above i.e. the home and all of the adjacent land are exempt if the spouse remains in the home or in the case of singles, the home and all of the adjacent land is exempt for a period of two years;
- If the land above two hectares cannot be exempted, only the home and up to two hectares would be assessed based on the general rules above; and
- Any income generated from the land (subject to allowable deductions) is assessed under the income test.
For aged care means testing:
- If the land above two hectares is exempted under the extended land use test prior to entering aged care, the whole property will be assessed as the principal home and exempt for aged care purposes if a protected person occupies the home. If there is no protected person living in the home, then the home cap will apply to the whole property; and
- If the extended land use test is not met when an individual enters aged care, then only up to two hectares can be assessed as the principal home for aged care and tempted if there is a protected person living in the home. Otherwise, the home and up to two hectares are assessed up to the home cap amount. The land above two hectares would be counted as an asset.
Estate Planning Options For When The Spouse Vacates Former Home (Retains It) + Moves In With The Kids
In some situations, the spouse may not want to (or soon after the individual enters aged care, they may no longer be able to) live on their own and decide to move in with the children where they can receive care and assistance.
The social security assessment of the former home will depend on whether the move into the new home was intended to be a permanent or temporary arrangement, and whether the move was to receive care and assistance.
The social security assessment is as follows:
- If the move was to receive care, the former home remains exempt for a period of two years from the date the spouse vacated the home. The couple is assessed as homeowners during this time.
- If the move was not to receive care and was intended to be temporary, the former home remains exempt (and the couple assessed as homeowners) for the longer of:
- Two years from when the individual entered residential aged care, and
- 12 months (unless an extension is granted) from when the spouse vacated the home (under the social security temporary vacation rules).
- If the move was not to receive care and was intended to be permanent, the former home remains exempt for a period of two years from the date the individual entered aged care. The couple is assessed as homeowners during this time.
- After the above exemption periods, the couple is considered non-homeowners and the net value of the former home is assessed.
For aged care means testing:
- Where the former home is no longer occupied by a protected person, it is assessed up to the home cap amount for the individual in aged care.
Spouse Vacated Former Home (Retains It) + Rents A Home Closer To The Individual’s Aged Care Facility
If the spouse decides to vacate the former home and rent a place closer to the aged care facility, perhaps to assist in visiting their spouse in aged care, the assessment of the former home for social security and aged care means testing is the same as the scenario above (spouse moving in with the kids) except the spouse is unlikely to be receiving care in the rental property. The spouse can be eligible for rent assistance after the relevant social security home exemption period ends and the couple is assessed as non-homeowners.
Financial Advisory Services with Canny Advisory for Your Aged Care Needs
Canny Advisory is able to give you specialised advice on aged care.
Where possible, the best time to get financial advice on aged care is as soon as possible. Having the time and not making rushed decisions, where possible, gives you the power to be able to make informed decisions for yourself and your loved ones.
We have a team that specialises in aged care and will continually work with you to review your individual circumstances and help you to make the best decision for you and your loved ones. Get in touch with our team to ensure that you have an expert team beside you, every step of the way.
