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The prospect of needing residential aged care later in life is one of the top issues on the minds of Kiwi retirees. This is hardly surprising, given the sector’s high-profile funding crisis and ongoing bed shortages. On top of this, navigating the aged care system can feel overwhelming, particularly given the complexities around costs and subsidies. In this article from the Lifetime Income team they highlight some of the things to consider.
You can read the original article here: Ten things you should know about aged care Or you can read the article published in full below and tell us what you think in the comments section.
Ten things to consider about Residential Aged Care
We’ve pulled together ten crucial points to keep in mind whether you’re currently looking into aged care for yourself or a loved one or simply want to stay informed. Please note, this is for information purposes only. For advice tailored to your specific financial circumstances, we recommend you seek professional advice, particularly to clarify gifting rules, relationship property, and the implications if you have or have ever had a trust.
1. Residential care costs are means-tested
Residential care costs can be substantial, with weekly fees ranging from $1,400 to $1,800+ depending on the facility, location and services you choose. In some ways, the cost structure is quite simple: you either have the means to pay the fees yourself, through savings or any other assets that can be drawn from or sold, or you don’t, in which case the state funds your care.
To qualify for government assistance through the Residential Care Subsidy (RCS) your needs must first be assessed to determine the level of care you require, and your assets must fall below specific thresholds. For individuals aged 65 or older the asset threshold is either $284,636 (including your home and car) or $155,873 (which excludes the family home and car and is an option only if you have a partner who continues to live in the home).
2. What counts as an asset?
For the purpose of aged care, assets include but aren’t limited to savings and investments, loans made to other people (including trusts or directly to family members), boats, caravans and campervans and investment properties. Personal belongings such as clothing, jewellery and household furniture aren’t included, nor are pre-paid funeral expenses of up to $10,000, as long as it’s held in a recognised funeral plan.
3. Your partner’s situation matters – even if you have a contracting out agreement
Given the growing number of blended families and new relationships formed later in life, it’s important to realise that your partner’s assets will be included in your assessment for the RCS (and vice versa). This is the case even if you have deliberately kept assets separate under a formal relationship property agreement (often referred to as ‘contracting out’). While your partner’s separate assets cannot be called on to pay for your aged care (and vice versa), it’s the value of your combined assets that will determine your eligibility for the subsidy.
4. Gifts are assets, too
The government carefully scrutinises any gifting of assets when assessing eligibility for the RCS. Gifts of up to $8,000 per year in the five years before applying are excluded. For gifts made more than five years prior, the allowable limit increases to $27,000 annually. These limits include your partner’s gifts (even if your partner is no longer alive), as well as your own. Any gifts beyond these amounts are added back into your asset pool for means-testing.
5. Trusts can be a double-edged sword
Transferring assets to a family trust can help protect them, as assets held in trust are excluded from your personal asset base, but only if done correctly. And gifting rules still apply, so any gift to the trust above the allowable limit will count towards your personal assets when your eligibility for the RCS is being assessed.
If you have a trust (or have had one in the past) and are unsure how this impacts your means assessment for the RCS, we recommend you seek advice from a lawyer or trust expert.
6. Income testing also applies
If you pass the asset test, your income will also then be assessed above certain thresholds. Most forms of income, including: NZ Superannuation, private and overseas pensions, salary, business income, trust payments, investment earnings, and interest, are considered. Income from your partner’s employment does not count.
7. NZ Superannuation contribution
If you’re in residential care and receiving NZ Super, most of it will go toward your care costs. You’ll keep a small personal allowance of $55.35 per week, along with an annual clothing allowance of $347.17. These amounts are intended to cover personal expenses not included in the care facility’s contracted services.
8. Understanding contracted care
The weekly charges for care services are capped at a “maximum contribution rate”, which covers essential services like accommodation, meals, and basic healthcare. This rate can differ depending on the facility’s location. Additional charges may apply for non-standard services such as premium rooms or extra amenities. Ensure any extra costs are clearly outlined in your Admission Agreement.
8. Understanding contracted care
The weekly charges for care services are capped at a “maximum contribution rate”, which covers essential services like accommodation, meals, and basic healthcare. This rate can differ depending on the facility’s location. Additional charges may apply for non-standard services such as premium rooms or extra amenities. Ensure any extra costs are clearly outlined in your Admission Agreement.
9. The Residential Care Loan
If your assets exceed the RCS threshold because you own your own home, you might qualify for a Residential Care Loan instead. This interest-free loan is secured against your home and is paid directly to your rest home to help pay for your care. The loan does not need to be repaid until you pass away or sell the property.
10. Alternatives to residential care
Residential care isn’t the only option, even if you can no longer live entirely independently. Many older adults prefer to stay in their own home and use community care services or supported living arrangements to assist with personal and medical care, as well as social and recreational activities instead of moving into a facility.
If the cost for in-home services exceeds your budget, options like reverse mortgages or our debt-free alternative Lifetime Home can help by allowing you to release equity from your home to supplement your income in later years.
More information
For more comprehensive guides and resources on residential aged care, check out Age Concern and Te Whatu Ora.
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