Farm Planning: Aged Care
MULCAHY & CO | P 03 5330 7200 | INFO@MULCAHY.COM.AU | 300B GILLIES ST NTH, BALLARAT
AGED CARE: START PLANNING The cost of aged care is a hidden liability on the balance sheet of many farm businesses. Farmers are typically described as ‘asset rich’. For aged care purposes this means a higher financial contribution up front and ongoing. The more you pay does not mean you get looked after any better! Put simply you will be subsidising other recipients. It is a cost that many farms will not be able to afford without selling assets. With careful planning there is a solution to safeguard farm assets and provide peace of mind to the family.
WHAT ARE THE COSTS With no planning you will be exposed to paying the maximum fees.
WHAT ARE THE CHANCES OF NEEDING AGED CARE SERVICES? According to the Department of Health and Ageing: •
One third of all men and half of all women who reach age 65 will enter aged care at some point.
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Thirteen per cent or 3 million Australians are currently over age 65.
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By 2056 this figure is projected to be 25% of the population or 9 million people.
FUTURE CONCERNS As demand grows it is anticipated the costs associated with aged care will also increase. Those with income and assets will be required to pay their fair share plus more. This is best illustrated with what has happened in the past few years: •
Aged care accommodation bonds required to be raised in 2011/12 were valued at $4.4 billion.
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Aged care accommodation bonds needing to be raised in 2014/15 are estimated at $8.9 billion in 2014/15 – more than doubled in 3 years.
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In 2010/11 the average accommodation bond was $248,850 (an increase of 7% over the prior year).
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At May 2013 the average aged care accommodation bond was $327,844.
There are essentially three charges: Accommodation bond: This is the up front bond held by the care provider and refunded once the accommodation finishes. It is normally paid as a lump sum but can also be funded as a loan. The amount is assessed by the aged care provider and is typically up to $550,000. If an aged care provider wishes to charge above this amount the provider must first gain approval.
As can be seen the cost and required funding has increased sharply and is expected to continue this trend.
THE SOLUTION We consider aged care to be a major challenge and risk confronting the future viability of many farming enterprises. Planning well in advance is the key to avoid paying more than your fair share. It is never too early to develop a plan and more importantly start to implement the plan! The important thing is to be proactive rather than being in a position where you are forced to make decisions. The aim is to limit the level of assets and income that can be used to assess the cost of aged care whilst not placing the assets and right to income in a situation where they are at risk. At present in Victoria we have very generous income tax, capital gains tax and stamp duty concessions that allow a farming enterprise to restructure for planning purposes. With all levels of government looking at ways to raise additional revenue there is no guarantee theses generous concessions will be available indefinitely.
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Daily fees: This is based on percentage of the aged pension rate. At present it is around $50 per day or around $18,000 per year. Means tested care fee: This is an extra fee that is calculated based on the level of income and assets. At present there is a life time limit of around $60,000 that can be charged. IMPORTANT DISCLAIMER: This document does not constitute advice. Clients should not act solely on the basis of the material contained in this document. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly and we therefore recommend that our formal advice be sought before acting in any of these areas. This document is issued as a helpful guide to clients and for their private information.
ACCOUNTING | FINANCIAL PLANNING | LENDING | LEGAL | INFORMATION TECHNOLOGY MULCAHY.COM.AU
MULCAHY & CO | P 03 5330 7200 | INFO@MULCAHY.COM.AU | 300B GILLIES ST NTH, BALLARAT
DON’T FORGET THE FIVE YEAR RULE! Remember that when ownership or control of an asset is deemed to have been gifted, you are treated as continuing to own the assets for a period of five years for aged care assessment (and Centrelink) purposes. This makes planning and implementation well in advance even more important.
WHAT TO DO NEXT Aged care planning is part of an overall planning strategy, including succession and estate planning. It is important to gain an understanding of what your potential aged care liability is and what practical options are available to address this. Once you understand this a plan can be developed and over a period of time the plan can be implemented.
OTHER BENEFITS Whilst the focus is to protect the family and the farming business, aged care planning can also unlock access to other concessions and benefits. These include the aged pension (currently over $30,000 per annum for a couple) and the health care card. But the most important benefit is certainty. Creating certainty that family members will be cared for and the farm is able to continue without incurring a big cost in the future.
HOW CAN WE HELP Our mission or purpose is to help committed clients achieve financial security. We have structured our business to realise this goal. With accounting, financial planning, lending, legal and information technology experts all working together we are better positioned to help committed clients achieve financial security. We have an in-depth knowledge of the agricultural industry and a passion to work with farmers. Aged care can be difficult subject to tackle so it is important to break down each step of the process and work towards the desired outcome for the family. We offer an obligation free meeting so you are able to gain a better understanding of how this process works.
We offer a free no obligation meeting to review your situation. Call us today on 03 5330 7200 and take advantage of this valuable offer.
ACCOUNTING | FINANCIAL PLANNING | LENDING | LEGAL | INFORMATION TECHNOLOGY MULCAHY.COM.AU
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