How to Avoid Selling Family Home To Pay for Care in Australia?

Video Transcript:

To avoid selling your/your parents’ home to afford aged care depends on the cost of entering aged care, particularly the accommodation cost. Often, a refundable accommodation payment needs to be made to cover the accommodation, and most people will then look at whether the family home needs to be sold. There are a number of other ways to fund that refundable accommodation deposit. It may be that the home can be kept and rented out, so rent can be attained from the home as an income to pay towards those fees. The refundable accommodation deposits can be paid in a combination of ways. It can be paid as a partial deposit, as a daily accommodation fee so that the house doesn’t have to be sold, or a combination of the two. Another way is to look at other assets that may be available to fund the accommodation payments. So it’s important to look at all the financial assets that are available to structure the costs and payments. Another way might be to borrow against the home. A common method is to use what’s called a reverse mortgage. A reverse mortgage is borrowing against the home as an asset, which frees up equity in the home. That can often be used to fund accommodation costs for aged care. Another option may be to apply for some government assistance; there are various schemes that can be applied for. Another way may be to get family support, so the family may be able to help fund those costs. There are a number of alternative ways to fund aged care without having to sell the family home. But it’s very important to get financial advice and the right advice to be able to make those decisions.

How to Avoid Selling Family Home To Pay for Care in Australia?

When a loved one requires long-term care, one of the most pressing questions families face is whether the family home needs to be sold to cover care costs. Sometimes I speak with individuals who are personally wondering what happens to my house if I go into a nursing home? Other times I am speaking with the family who are making decisions about Aged Care on behalf of their parents.  For many, the home holds not only financial value but also deep sentimental worth. Selling the home can feel like selling years of family memories—birthdays, Christmas gatherings, renovations, and shared laughter.

In Australia, whether or not the family home must be sold depends on various factors, including means-testing rules, exemptions, and asset planning strategies. This guide will explore ways to fund aged care without selling the home, ensuring families make informed financial decisions.

Understanding Aged Care Costs

Aged care costs in Australia vary based on individual circumstances and care needs. One of the primary concerns is the accommodation cost, which can be covered through a Refundable Accommodation Deposit (RAD), Daily Accommodation Payment (DAP), or a combination of both.

For more details on aged care fees, read our blog: What Are the Aged Care Fees?

Strategies to Fund Aged Care Without Selling the Family Home

A common question I am often asked by people is what happens to my house if I go into a nursing home? Fortunately, there are multiple ways to cover aged care costs while retaining ownership of the family home.

1. Renting Out the Family Home

One viable option is to lease the family home, using the rental income to cover aged care expenses. This approach maintains ownership of the property while generating a steady income stream. However, it’s essential to consider:

  • Income Assessment: Rental income may affect means-tested care fees, as it is considered assessable income.

  • Tax Implications: Rental income is taxable and may impact the overall financial situation.

  • Property Management: Managing a rental property requires time and effort or the engagement of a property manager.

2. Alternative Payment Methods

Aged care accommodation costs can be structured flexibly:

  • Refundable Accommodation Deposit (RAD): A lump-sum payment that is fully refundable when the resident leaves the facility.

  • Daily Accommodation Payment (DAP): An alternative to RAD, where payments are made daily, calculated based on the unpaid RAD amount.

  • Combination of RAD and DAP: Families can choose a mix of lump sum and daily payments to suit their financial capacity potentially avoiding the need to sell the home.

3. Utilising Other Financial Assets

Utilising existing financial assets, such as savings, investments, or superannuation funds, can help cover aged care costs. Assessing the liquidity and potential impact on retirement plans is crucial before allocating these resources.

4. Reverse Mortgages

A reverse mortgage enables homeowners to borrow against the equity in their property without making regular repayments. The loan, along with accrued interest, is typically repaid when the property is sold or the homeowner passes away. While this option provides immediate funds, it’s important to consider:

  • Interest Accumulation: Interest compounds over time, potentially reducing the estate’s value.

  • Eligibility and Terms: Lenders have specific criteria and terms for reverse mortgages.

For more details Reverse Mortgages please read How Reverse Mortgages Work

5. Government Assistance and Family Support

The Australian Government provides financial assistance and subsidies for aged care services. Eligibility is determined through an income and assets assessment, which influences the level of support received.

For more details on Home Care Packages, visit our blog: What Are Home Care Packages?

Families may also provide financial contributions to aged care costs, ensuring quality care while retaining the home. Open discussions about financial capabilities and expectations are crucial.

Understanding Means Testing for Aged Care

The means test determines how much a person must contribute to their own care based on their assets and income. According to My Aged Care, an assessment of income and assets establishes the amount of aged care fees. The family home is generally considered an asset, but under specific conditions, it can remain exempt.

According to the

Australian Department of Social Services

, exemptions can protect assets, including the family home, from being counted in aged care means tests. 

1. When the Family Home is Exempt

The family home can be exempt from means testing under the following conditions:

  • Spouse or Dependent Living in the Home: If a spouse, child under 16, or adult dependent relative resides in the home, it’s usually exempt from the means test.

  • Carer or Relative Eligibility: If a carer who has been living in the home for at least two years continues to reside there, or if an elderly relative is living there, the exemption may still apply.

These rules mean that families can sometimes retain ownership of the family home without risking it being counted in care fees.

2. Temporary vs Permanent Care and its Impact on the Home

The need for care may be temporary, allowing the family home to remain exempt while your mum is in care. If she returns home, the property would not need to be considered part of her assessable assets. However, if she remains in care indefinitely, then the family may need to make a decision regarding the home’s future.

3. Asset Thresholds and Home Value Limits

For those who do not qualify for full exemptions, the government sets an asset value threshold. Only a capped portion of the family home’s value is considered, not the entire market value. The current capped value changes yearly, making it essential to check current guidelines.

4. Establishing a Financial Strategy

There are ways to preserve assets and reduce the need to sell a home:

  • Setting Up a Family Trust: By placing the family home into a trust, it may be possible to protect it from being counted in care costs. However, trusts require foresight and a clear legal structure, as the government scrutinises last-minute transfers.

  • Joint Ownership and Inheritance Plans: In some cases, transferring part ownership to a spouse or child may offer protections. Estate planning should be done carefully, as it may have tax or care assessment implications.

5. Plan Ahead with Estate and Financial Planning

Deciding how to handle your family’s assets is easier with an early plan. By working with financial professionals, you can explore options like trusts, shared ownership, and insurance policies to manage care-related costs while retaining family assets.

Common Mistakes to Avoid

Mistakes in asset handling can lead to unnecessary fees or penalties. Here are some common pitfalls to watch for:

  • Last-Minute Gifting: Giving away assets shortly before entering care can be disallowed in means testing and may lead to unexpected costs.

  • Incorrect Trust Setup: Trusts that are not set up correctly may be considered part of the means test.

  • Not Consulting Professionals: Given the complexities of asset protection laws, professional guidance can make all the difference in effective planning.

Also Read: Means-Tested Care Fee Explained

Also Read: What assets are exempt from care home fees?

Importance of Seeking Professional Financial Advice

Knowing how to avoid selling the family home to pay for care in Australia while funding aged care requires careful planning and consideration of various strategies. Each option carries its own set of implications, making it essential to seek professional financial advice tailored to individual circumstances. By exploring these alternatives, families can make informed decisions that align with their financial goals and values.
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Even if your situation seems simple, there are so many aspects to consider in working out the best financial strategy. The value of seeking advice from an accredited aged care adviser is peace of mind to ensure you have made the right decisions to generate enough cash flow while protecting the value of your estate.

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