The limits of generosity: providing a RAD for a parent
Providing a Refundable Accommodation Deposit for a parent is a wonderfully generous thing to do, but it need not be so generous that you lose even more on the arrangement.
“Mum’s not got very much apart from her house and her pension so my husband and I have decided to pay the RAD she needs for the nursing home”, said our client recently.
“That’s extraordinarily generous of you” we said. “Your siblings and the government must be really happy”.
Our client looked perplexed.
“What do you mean?” she said.
Before we tell you what we meant let’s get clear on the issue.
When a person enters an aged care facility they can face a number of costs associated with their accommodation in the facility as well as with the services they enjoy there.
There’s the basic daily fee, the means-tested care fee, the fee for accommodation, extra service fees and even additional service fees. The RAD (or to give it its rightful name – the Refundable Accommodation Deposit) relates to accommodation.
Like hotels or places rented through Airbnb, each aged care facility sets its own pricing for accommodation based on things like its location, the size of the rooms (sometimes even a suite of rooms), whether it’s a single or shared room with a single or shared bathroom etc.
The new resident has a number of choices as to how they pay for this accommodation.
They can pay via a rental-style arrangement which is a daily payment called (if the government is assisting with the costs) a Daily Accommodation Contribution (DAC) or (where the resident is paying the whole amount unassisted by government) a Daily Accommodation Payment (DAP).
Or they can pay via a lump sum called (if the government is providing some of the money) a Refundable Accommodation Contribution (RAC) or (where the resident is paying the whole amount unassisted by government) a RAD.
Or they can pay via a mixture of both these types of payments – say of a total $400,000 a lump sum of $100,000 and the rest through smaller non-refundable daily payments.
The ‘Refundable’ bit refers to the fact that if the resident chooses to pay an amount as a lump sum, any unused money is refunded to them or their estate when they ‘leave’. Check the contract with the facility carefully though, as they often charge “an exit fee” (by whatever name) that eats deeply into the refund.
By paying the RAD for her mum our client was effectively giving this money to the family in a manner that she may not have meant to do.
Aged care facilities don’t want to be part of family financial arrangements and so they usually have a basic rule that says the RAD goes back to the resident or their estate when eventually refunded. This is regardless of who drew the cheque or made the EFT that paid the RAD.
Proving it was a loan with a signed document
In the absence of any documentation to the contrary between the resident and the provider of the funds, that money would most likely be seen as a gift to the resident and when refunded to the resident or their estate becomes their property. It won’t be seen as a loan just because our client thought that’s what it was. You need to prove it was a loan via signed documentation.
As part of the estate it would be dealt with under their Will (hopefully they have one) or if not by the statutory order for distribution. Either way it won’t go back to our client but will be shared among all her mum’s children.
Even worse, as a gift and therefore part of her mum’s property it is more than likely that the amount would be counted in the means test used in calculating her mum’s entitlement to government assistance or the amount payable to the aged care facility.
The gift has effectively made it more expensive for her mum to live in the facility. This may not be a problem given the client is providing the money; it just seems silly to give money in a way that ensures you have to give even more than you would otherwise have had to.
By all means help aged parents to afford their accommodation in an aged care facility but be sure the help you provide is in a form that doesn’t bring extra problems with it.
For further information, please call us on (02) 8296 6222 or email email@example.com .