Is it worth selling my house if I go to daycare?



For older Australians who cannot live independently at home, residential care for the elderly can provide accommodation, personal care and general health care.

People generally think it is expensive. And many assume they have to sell their home to pay a lump sum deposit.

But this is not necessarily the case. Here is what you need to consider.

You can get financial support

Charges for seniors in residence are complex and can be confusing. Some are for your daily care, some are means-tested, some are for your accommodation, and some pay for extras, like cable TV.

But it’s easier to think of these fees as falling into two categories:

  • an “entry deposit”, which is generally greater than $ 300,000, and is reimbursed when you leave the daycare

  • Daily “ongoing charges“, which are $ 52.71 to $ 300 per day, or more. These cover basic daily fees, which everyone pays, and means-tested child care costs.

To find out the amount of government assistance you will receive for these two categories, you will have a “means test“to assess your income and assets. This means test is similar (but different) to that of the old-age pension.

Generally speaking, the lower the amount of your means test for the elderly, the more government assistance you will receive for elderly care.

With full support, you don’t need to pay an “entry deposit”. But you still have to pay the basic daily rate (currently, $ 52.71 per day), equivalent to 85 per cent of your old age pension. If you get partial support, you pay less for your entry deposit and ongoing charges.

The government pays some people 85 percent of their daily child care costs.(

PAA

)

You don’t need a lump sum

You do not have to pay your entry deposit as a lump sum. You can choose to pay a rental-type daily cost instead.

This is calculated as follows: you multiply the required entry deposit amount by the maximum allowable interest rate. This rate is set by the government and is currently 4.01 percent per year for new residents. Then you divide that sum by 365 to give a daily rate. This option is the same as borrowing money to pay your entry deposit via an interest-only loan.

You can also pay your ‘entry deposit’ with a combination of a flat rate and a daily rental cost.

Since you don’t have to pay a lump sum for your entry deposit, you have different options for running your family home.

Growing surveillance of immunization rollout in care of the elderly
Some people have a sentimental attachment to their family home and do not want to sell it.(

7.30 Report

)

Option 1: keep your house and rent it out

This allows you to use the rental type daily cost to fund your entry deposit.

Benefits

  • you could have more rent income. This can help pay for the daily rental cost and ongoing elder care costs.

  • you might have a special sentimental attachment to your family home. So keeping him might be a less confrontational option

  • keeping an expensive family home won’t have a big impact on your residential care costs. This is because any value of your family home above $ 173,075.20 will be excluded from your means test

  • you can still access your home’s capital gains as house prices go up.

The inconvenients

  • your rental income must be included in the means test for your old age pension. So you could get an older pension

  • you may have to pay taxes on rental income

  • compared to lump sum payment, choosing daily cost of rental type means that you will end up pay more

  • you are subject to a changing rental market.

A wooden house.
If you choose to keep your home and rent it out, be aware that you are subject to a changing rental market.(

Provided: Edward Thomas

)

Option 2: keep your house and rent it, with a twist

If you have savings, you can use a combination of a flat fee and a daily rental cost to pay your entry deposit.

Benefits

  • like option 1, you can keep your home and have a stable income

  • the amount of the lump sum deposit will not be counted as a credit in the means test for elderly care.

The inconvenients

  • like option 1, you may have less pension income, higher child care costs, and more income taxes

  • you have less liquid assets (assets that you could sell or access quickly), which could come in handy in an emergency.

Option 3: sell your house

If you sell your home, you can use all or part of the proceeds to pay your entry deposit.

Benefits

  • If you have any money left over after you sell your house and pay your entry deposit, you can invest the rest

  • as your entry deposit is exempt from the means test for your age pension, this means more pension income.

The inconvenients

  • if you have any money left over after you sell your home, it will be included in the means test for seniors. So you may end up with less financial support for elder care.
Elderly care residents with arms in the air
Your elderly care facilities test may be affected by the sale of your home.(

ABC News: Phoebe Hosier

)

In a word

Keeping your house and renting it out (option one or two) can give you a better income, which you can use to cover other living expenses. And if you don’t mind having access to liquid assets in an emergency, the second option may be better for you than the second.

But selling your home (option three) keeps you from being exposed to a changing rental market, especially if the economy goes into recession. It also gives you more capital and you don’t need to pay a rental type daily cost.

This article is general in nature and should not be taken as financial advice. For advice tailored to your individual situation and personal finances, please consult a qualified financial planner

Colin Zhang teaches in the Department of Actuarial Studies and Business Analysis at Macquarie University. This piece first appeared on The conversation.



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