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Should You Sell Your Home to Buy Your Nursing Home’?
By Aadil Abbas, Accredited Aged-Care Financial Adviser
With average cost of aged care/nursing home accommodation being $470K and going as high as $1m in inner-city Sydney and Melbourne, it is not surprising many people see no choice but to sell their home sweet home to fund the cost of keeping them safe and healthy.
But for most of us our home isn’t just another financial asset. In fact, it is anything but a financial asset. It is place filled with memories and emotions. It is something we hope to pass on to the next generation to keep up the family rituals and traditions. Even in the toughest of financial times we will do anything to ensure we don’t miss the next mortgage repayment!
It’s no wonder then when the time tough times associated with aging and health come around in the later years of life, the very idea of selling the family home is anathema to most of us. Hence, some advance planning and thinking might be useful to determine what role, if any, our homes might play in financing the cost of us living longer.
Some key points to keep in mind when thinking about the family home as you explore options to fund your aged care expenses:
-the treatment of the home for aged care and social security purposes differs, and
-assessment of the home may change after you move into a nursing home, which may impact social security entitlements and aged care fees.
Know The Two-Year Rule
For Centrelink benefits purposes e.g. the age pension, your home will be exempt under the Assets Test for two years from the date you move out of your home into a care facility. If your spouse continues to live at home, then your home will be exempt for as long as your spouse continues to live in the home.
If and when your spouse also moves in with you into a care facility, it will be exempt for two years from the date they leave the home. You and your spouse will both be considered as homeowners by Centrelink in either of the above scenarios.
As mentioned earlier, Centrelink and Aged Care rules sometimes do not align and they certainly don’t when it comes to the family home.
So, for aged care fee calculation purposes, the value of your former home will be exempt when the home is occupied by a protected person. Where your home is not occupied by a protected person, the home will be assessed up to the home exemption cap (currently $201,2311).
It would be good to keep in mind who is considered a protected’ person for aged care purposes:
-Your spouse or a dependent child;
-A carer eligible for an income support payment who has lived with you for the past two years; or
-A close relative eligible for an income support payment who has lived in your home for the past five years
So, one key takeaway here is that for most people, subject to their overall income/asset position, you have at least a two year window to decide whether you retain or sell your home.
What happens if you decide to rent out your home?
Whilst Centrelink and Aged Care may not see eye to eye as it relates to the asset value of your home, they certainly have the same view when it comes to renting your home.
For both Centrelink and Aged Care fee purposes, any rental income you receive will be assessable income and, in most situations, have a negative impact on your Centrelink payment and aged care fees.
Impact on Capital Gains Tax (CGT)
Whilst it is important to seek proper tax advice when considering either to sell or rent the home, broadly keep in mind the below as it relates to CGT:
-If your home has always been your main residence, the main residence CGT exemption will be available to you even after moving into a nursing home so that proceeds from the sale of the family home are CGT free.
-If you decide instead to rent out your home, you can still elect for it to be treated as your main residence for a period of up to six years. After the end of the six-year period, if you continue renting out the home, there may be capital gains tax payable upon sale after the six-year period.
-Finally, if you retain your home and leave it vacant, you can retain the main residence CGT exemption indefinitely.
Case Study
The above scenarios and their implications are probably best explained using the below case study.
-Louise is single and 80 years old. Her husband passed away couple of year ago and she is unable to stay at home due to her deteriorating health.
-Louise’s chosen aged care facility has an advertised accommodation price of $750,000
-Her home is worth $1.5m and she has $200K invested in term deposits
-Ideally Louise and her family would like to keep her former home and not rent it out
-If she rents it out she expects to receive rent of $800/week
NB : Scenarios for illustrative purposes only using approximate figures.
What are some of the key take aways here for Louise and her family?
-In the first scenario where the home is neither sold or nor rented out, Louise will have to take approximately $53K/annually from her $200K term deposit to fund her expenses. Based on this she will run out of money in just under 4 years’ time.
-In the second scenario, where the home is rented out the situation isn’t too different again for Louise as her rental income has a significant negative impact both on her age pension and means-tested care fee.
-In the last scenario where the home is sold, whilst Louise loses her age pension entirely, paying the entire accommodation deposit (fully refundable to her if her date of entry is anytime prior to 1 July 2025), she experiences a significant reduction in her aged care fees as result of eliminating the daily accommodation payment.
As you can see whilst Louise and her family ideally didn’t wish to sell or rent the home – in this case, unless her family is willing to assist with her expenses whilst she is in her new home’, selling the family home seems to make the most financial sense for Louise and her family.
Real-life scenarios and decision making is certainly more complex than this case study.
Given the various emotions and significant financial considerations involved in this decision, working with an accredited aged-care financial adviser may enable you and your family to explore all options/scenarios and avoid unintended consequences for your cashflow, assets, estate plan and legacy wishes.
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Aadil Abbas, Accredited Aged-Care Financial Adviser
Own Financial Planning
aadil@ownfp.com.au
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