Background – aged care advice for couples
Complexity is heightened in aged care with blended families and because of inequities in financial resources. In addition, retiring couples may be less organised when planning, often assuming their spouse will look after their best interests.
However, the situation may be more complicated than that, mainly when the is a requirement to balance joint needs and estate planning outcomes.
How amending beneficiaries may improve outcomes for couples transitioning to aged care
A standard General Will arrangement occurs where there is a mum and dad, and if the mum passes away, the dad inherits the mum’s share of their estate, and if the dad passes away, the estate then goes to the children. It is common in couples who have children together and have been married or de facto for quite some time.
However, this may not always provide the best outcome for couples from a Centrelink and an aged care perspective. Thinking about who the beneficiaries are can help improve some of the outcomes.
If mum and dad are married and in the stage of transitioning to aged care, there are many things to consider. Couples commonly receive advice that they must stagger their entry date into aged care to minimise aged care costs. Although, this is not always the appropriate course of action and making the decisions without completing due diligence can cost you more in aged care fees.
There are many factors to consider when determining the best strategy to pay for their aged care expenses, including:
- whether to sell the family home
- whether or not one should pay a RAD or DAP
- how different payment methods will affect their age pensions.
This change in financial situation – encompassing RAC/RAD, lifestyle assets, cash, interest, Centrelink (aged care pension), aged care fees (basic daily fee and means-tested fee), and lifestyle expenses – needs to be considered before entering an aged care facility and reflected in their Will and Estate Plan in preparation for when one party passes away. It is essential to consult an experienced Will and Estates Lawyer in this process.
For instance, amending the Will to leave the joint bank account and the joint lifestyle assets to the surviving party but leaving the RAC of the deceased party to their children could improve the financial situation of the surviving party.
Advantages for the surviving party:
- Increased age pension
- Decreased aged care fees
- Decreased cashflow deficit
- No probate to have his assets transferred
- Lives to see kids enjoying part of their inheritance
Advice considerations:
- Does the client have the capacity to change their Will? When dealing with clients entering a care situation, you must consider that they may not have the legal capacity to change their existing arrangements. Or perhaps one party does have the capacity, and the other does not.
- It would be beneficial to consider whether the surviving spouse has sufficient assets to meet their ongoing obligations.
- Beware of financial elder abuse. You always need to make sure that your client’s interests are protected. Beware of kids trying to drive the change simply because of inheritance impatience.
Recommend solutions for the financial issues faced in second marriages & blended families
Different considerations apply regarding married couples with children from previous relationships—also known as blended families.
If the couple’s finances are kept separate, issues can arise when applying for Centrelink benefits and if either of them or both require aged care. The reason is that Service Australia and Centrelink will treat them as a couple, including their finances. To calculate entitlements and fees, all assets are combined and halved regardless of the individual ownership.
Couples with a blended family must consider their income position (assets and cash flow) separately and then combine once they are married or living together. Financial position includes house ownership, account-based pension, cash, interest Centrelink, lifestyle expenses and each party’s contribution to those expenses. Therefore, they are committing equally to the relationship’s lifestyle expenses.
For instance, one party’s rental assistance may change when they move in together, or one’s Centrelink (full or part-aged pension) amount may change because they are now in a couple.
Income equity solutions for couples in a blended family to improve equitability:
- Option A: pool all their income & share it as a couple
- Option B: the party moving into the other’s home pays ‘rent’ to Shirley for staying in her home
- Option C: The party with the reduced aged pension could access the Pension Loan Scheme (PLS) to top up their income
Of course, you must also consider how the children in the family would feel about any changes made, as this could affect their future inheritance.
Why it is important to actively consider your client’s long-term interests and likely future circumstances
If the couple in the blended family decides to transition into aged care, there are many considerations.
The transition to a retirement village:
If the couple moves into aged care and one party contributes more than the other to the costs, this can cause an issue as some retirement villages only allow joint tenancy and not tenancy in common. That does not align with their estate planning objectives to leave their assets to their respective children.
Advice considerations:
- Seek legal advice
- A well-drafted legal agreement can ensure ownership percentages are maintained for estates.
- But each party must have the capacity to enter into the arrangement.
Couples in care: Blended families
Moving into aged care can magnify a couple’s issues even further. The need to pay accommodation payments and means-tested fees magnify their cash flow issues. At some point, the children may need to get involved.
If one party’s health deteriorates to the point that they need to move into aged care, assets and cash flow need to be assessed, and estate planning revisions may need to be made. That party may have lost the capacity to make their own decisions legally. Currently, alternate decision-makers enter the situation.
Alternative decision-makers:
- General power of attorney (GPOA) – has authority to manage legal and financial affairs. It ceases once the principal loses mental capacity.
- Enduring power of attorney (EPOA) – has authority to manage legal and financial affairs. It continues after the principal loses mental capacity.
- Guardianship – makes lifestyle and health decisions. It is only effective once the principal has lost capacity.
Key takeaways
- Proper planning for incapacity and aged care transition is essential
- Don’t leave things to chance
- Expert legal and financial advice is key
- Legal advice
- Financial advice
Vogue Advisory Group – helping clients plan for every stage of life
Before transitioning to aged care, it is essential to construct a plan with an experienced estate planning lawyer and financial adviser. Doing so will ensure that the plan considers and reflects how to pay for the accommodation and meet the ongoing costs whilst also anticipating cash flow, tax, pension, and estate planning ramifications.
The transition can be complex, and you should seek financial and legal advice. If you or anyone you know is transitioning into aged care, please contact us, and our financial advisors can assist you.
