Paying for your partner’s aged care? Don’t make this $750,000 mistake

Lending money within families has always been fraught. Add aged care to the mix, and what starts as an act of generosity can quickly become a financial and emotional minefield.

Increasingly, spouses are stepping in to fund aged care costs. It reflects a broader social shift – second and third marriages and blended families are now the norm rather than the exception. With that comes a mismatch between how the system assesses people, and how their lives are structured.

Under Australia’s aged care means testing rules, couples are generally assessed on half their combined assets and income. On paper, that sounds equitable. In reality, it often isn’t.

Take a common scenario. A couple meets later in life. He has modest savings and no home. She owns the house they live in and is financially comfortable, having inherited wealth from parents and a previous marriage. Her intention is clear: she wants to look after her new partner, but ultimately pass her estate to her children.

Then aged care enters the picture.

Based on his half share of the assets and income, he needs to pay the market price for his aged care. In many aged care homes that means a refundable accommodation deposit (RAD) of $750,000, with the alternative being a daily accommodation payment (DAP) of $164 a day — almost $60,000 a year.

Paying the RAD can ease the cash flow pressure of aged care fees, but those savings can pale into insignificance if there is a dispute.

That’s just the accommodation cost. He will also need to pay the basic daily fee and based on his share of the assets and income, a hotelling fee and the non-clinical care contribution. If he pays by daily payment, his total annual costs will be more than $131,000 a year. Doing nothing is expensive, but stepping in to help isn’t straightforward either.

If she chooses to pay the RAD, the numbers appear to improve. Paying the lump sum effectively offsets the DAP, saving about $60,000 a year. But there’s a trade-off: that $750,000 is no longer available to invest, and it’s not fully refunded, a retention fee of 2 per cent ($15,000) a year for five years will be deducted from it.

And then there’s the real sting in the tail: what happens when he leaves. The balance of the RAD is refundable, but it is paid to the resident’s estate – not to the person who provided the funds.

Jennifer Dixon, a wills and estate specialist with Moores, says: “What began as a gesture of love and care can quickly turn into a dispute. Ideally, a loan agreement between the couple would be drawn up. Absent this, his will could direct the funds to her, but this could be challenged by other beneficiaries.”

The most common issue when one spouse pays for the other’s aged care is deceptively simple: is it a gift or a loan?

Paying the RAD can certainly ease the cash flow pressure of aged care fees, saving tens of thousands of dollars a year, but those savings can pale into insignificance if there is a dispute about getting a refund. It’s worth getting advice.

Rachel Lane is the author of Downsizing Made Simple, a book and website aimed at demystifying downsizing.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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