Planning for aged care - don t get caught napping on aged care. Natasha Panagis Technical Specialist, Strategy Steps

Transcription

1 Planning for aged care - don t get caught napping on aged care Natasha Panagis Technical Specialist, Strategy Steps

2 Important information The information contained in this presentation is intended to provide a brief outline of legislation as at 1 January It is based on our understanding of the present laws and Government announcements and the assumption that they will continue. These are general statements and should be relied upon as a guide only, as an individual s circumstances can be quite different. You should seek advice about how the relevant laws impact on your particular circumstances. The rates of return and inflation used in the projections are estimates only and are intended to be only a guide to future performance. No guarantee of investment performance is given or implied through the use of these projections and actual returns will differ from those indicated. Past performance should not be taken as a guide to future performance. We recommend that you refer to the relevant Product Disclosure Statement where reference is made to a particular product before taking any action. Aged Care Steps is an authorised representative of Strategy Steps Pty Ltd. ABN AFSL No

3 Agenda Why aged care is becoming critical for your business A perspective on fees How you can help clients be ready and add value Interactions for advisors, lawyers and SMSFs

4 Part 1: The aged care business opportunity

5 Ageing is a global issue Number and proportion of older people (60 plus) Approx 20% of retirement years expect to be care years 901 million 12.3% of total world population million 16.5% of total world population million 21.5% of total world population Source: UNDESA Population Division, World population prospects: the 2015 revision, DVD Edition, 2015

6 Why aged care matters Sourced from AIHW, Changes in life expectancy and disability in Australia 1998 to 2009

7 Importance of being ready More than 30% of people over age 80 have cognitive impairment Around 52% people in aged care have dementia (71% are women) Start conversations with clients (and families) early especially with SMSFs Incidence of dementia by age

8 Choose your business position Time, expense and activity levels all depend on where you want to be Support existing clients build advice capability. Use support of professional networks and outsourced services Protect your client base Identify need, provide information, refer to specialist. Proactive specialist become expert in knowledge and skills. Active marketing and connect with service providers. Source resources for efficiency.

9 Part 2: A perspective on fees

10 Vote! Do you think the cost of aged care in Australia for a resident is: A. Expensive B. Cheap C. Good value D. Never thought about it

11 The fee landscape Means-tested amount (MTA) Accommodation payment Resident daily fee Means-tested care fee Additional services fee Lump sum (RAD) or daily fee (DAP) Rates published Flat fee (85% basic single pension) Paid by all residents Based on assets and income Caps apply Set by service Optional Pays for accommodation Pays for living expenses and care Pays for luxuries

12 Compare to independent living Expenditure measurement Amount per annum Maximum age pension $22,542 ASFA living standard modest 85 yo $23,026 ASFA living standard comfortable 85 yo $38,369 Up to $105,768 Residential care daily care fees/subsidies But resident only pays between $17,468 & $43,200 (based on MTA) plus personal expenses

13 Putting costs into perspective Accommodation Care General premise Personal expense Resident pays basic fee Government pays balance of care cost Equity measure BUT: government helps if low-means resident ie. MTA < BUT: resident pays more of cost (and govt less) if higher means ie. MTA > 53.84

14 Part 3: Where you add value

15 What clients are looking for Home care Retirement village Live-in care Private nursing Respite care Residential care What options and how? Can we afford? Cashflow management Fees Centrelink/DVA Investment returns Financial restructuring to maximise wealth Increase Centrelink/DVA Reduce fees Manage tax Effective estates What are we missing?

16 Advice is key Payment option Sell or keep the home Added strategies Lump sum (RAD) Personal/ family preferences Income streams Trust/bond? Daily fee (DAP) Financial implications and cashflow Funeral bond Reverse mortgages Estate planning and implications

17 Is it better to pay the RAD or DAP? Pay as much of the agreed RAD as possible except if: Need access to cash for other purposes or liquidity Can invest at better return than the DAP interest rate (MPIR) currently 6.22% Client s life expectancy is very short Don t want to create complications / delays for the estate Problems liquidating assets (or timing bad) Golden rule: never fully pay the RAD if the former home is still owned (and make sure tenants are paying rent) pre 1 Jan 2016 residents or for Centrelink/DVA concessions

18 Case study: Trudy Home - $950,000 (potential rent $26,000, $6,500 expenses & $2,500 land tax if rented) Cash - $150,000 (earns 3.25% pa) Shares - $250,000 (earns 4% pa) Issues for Trudy (age 87) Family solicitor (enduring guardian) and only son (enduring POA) agree Trudy needs to move into care due to her poor health (dementia) RAD $410,000 or DAP $69.87 per day Can she afford this amount? ABP - $400,000 (earns 6% pa, draws 9% min $36,000 & DA is $20,000) What are her immediate issues?

19 Case study: Trudy The day 1 position Full DAP $ Distributions (cash/shares) 14,875 Refunded franking credits 3,214 Account-based pension 36,000 Total cashflow 54,089 Basic daily fee ($47.86 day) 17,469 Means-tested care fee ($37.80 day) 13,798 DAP ($69.87 day) 25,502 Total aged care fees 56,769 Lifestyle expenses (inc. private health insurance) 7,400 Home maintenance 6,500 Total expenses 70,669 Surplus/shortfall income (16,580)

20 Case study: Trudy s options Rent home $26k pa, use cash/shares to pay $400k RAD and rest as DAP Sell home and use to pay full $410k RAD, with surplus to bank Distributions (cash/shares) - 31,499 Refunded franking credits - 3,211 ABP income 36,000 36,000 Rent 26,000 - Age pension 14,957 - Total income 76,957 70,710 Basic daily fee 17,469 17,469 Means-tested fee 24,428 25, % Total aged care fees 42,519 43,200 Total expenses (personal & home) 16,400 7,400 Surplus cashflow 18,038 20,110 Projected net assets 1,749,495 1,734,780

21 Case study: Trudy Analysing the results Cashflow important to ensure strategy is manageable. Net asset position completes the picture While she still owns home never pay full RAD (provides Centrelink concessions) Factor in all expenses to keep, rent or sell home, eg: Home maintenance expenses $6,500, land tax if rented $2,500 Sale costs $28,500 (3% of market value) Cost to prepare home for rent or sale (assumed nil for this example) Rental strategy has reduced cashflow (despite lower fees and higher age pension) due to higher investment costs on home but growth on home improves overall net asset position. However, higher potentially risk strategy and more involvement required.

22 The new rules Trudy moves into care after 1 January 2016: Rental income is assessable for aged care fee calculations But exempt for Centrelink means-testing (provided some DAP paid) If she moved into care before 1 Jan, exemptions also apply to fee calculations, and MTF would be significantly lower Further changes suggested in 2015 MYEFO from 1 Jan 2017 may see Centrelink exemptions abolished after this year for new residents

23 Case study: Trudy If renting would it be better to cash the ABP? Use cash/shares to pay $400k RAD Use ABP to pay $400k RAD Distributions (cash/shares) - 14,875 Refunded franking credits - 2,243 ABP income 36,000 - Rent 26,000 26,000 Age pension 14,957 14,957 Total income 76,957 58,075 Basic daily fee 17,469 17,469 Means-tested fee 24,428 22, % Total aged care fees 42,519 40,650 Total expenses (personal & home) 16,400 16,400 Surplus cashflow 18,038 1,025 Projected net assets 1,749,495 1,751,812

24 Case study: Trudy Would you consider the ABP? When it comes to SMSFs and ABPs we normally think: Tax-free income Centrelink effective Pass onto spouse The assumption is that ABPs are more effective than other options But also consider: Relative returns Capital gains tax / income tax Death benefits tax (potentially up to $68,000) Anti-detriment options Flexibility and access Future direction of interest rates Life expectancy

25 Case study: Trudy What if Trudy tells her EG she wants to stay/die at home EG looks into 24/7 private nursing care in the home costs $240k pa EG wants EPOA to sign off on private nursing care costs EPOA refuses to approve costs and wants Trudy to move to aged care as its cheaper EPOA is also the beneficiary of Trudy s estate conflict of interest? Who wins?

26 Vote! Do you think the cost of aged care in Australia for a resident is: A. Expensive B. Cheap C. Good value D. Never thought about it

27 Part 4: Interactions for advisors, lawyers and SMSFs

28 Be clear on your value proposition Remember: Clearly define value proposition Set expectations Explain process Family mediation Objective voice to family Show them how Clear directions Remove uncertainty Avoid the pitfalls Time factor Saving busy clients time Create efficiencies Finances Viability of options Improve outcomes

29 Everyone plays a part Plan ahead Remove uncertainty Assess options & estimate fees Financial structuring & review Family mediation Advisors Lawyers Estate planning Review wills Estate allocations Loan from kids EPOA/EPOG If member is legally disabled, consider: Appointing LPR as trustee, or Rolling benefits to public offer fund Convert to a SAF SMSFs

30 Professional support networks Others? FIS officer Financial planner Personal guidance You Lawyer Moving & packing Placement services Accountant

31 Opportunities in your client base Older clients moving to next life phase But don t ignore clients the kids Be proactive marketing & review meetings start the conversation!!!

32 How can we help you? Training Paraplanning Business Toolkit TM Website: agedcaresteps.com.au Visit: Us at our stand Advice Generator TM

33 Thank you

34 Disclaimer SMSF Association 2016 This presentation is for general information only. The material and opinions in this presentation are those of the author and not those of the SMSF Association. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. This presentation was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. 34