Caring for ageing parents: a big decision that needs a plan

Knowing what's best for ageing parents isn't always as simple as families may imagine. Picture: Shutterstock.
Knowing what's best for ageing parents isn't always as simple as families may imagine. Picture: Shutterstock.

How to best take care of ageing parents is becoming a huge issue for many baby boomers.

The parents generally cope quite well until one of them dies leaving the surviving partner, usually mum, alone in a home which may well be unsuitable for her.

At first she may be reluctant to move, and, even when a decision to move is made, the family are often overwhelmed by the range of options available, and the advantages and disadvantages of each one.

These may well include retirement villages and land lease communities.

When it all becomes too difficult, they will probably throw their hands in the air, and say something like "let's keep it simple, mum can come and live with us."

Unfortunately, it usually is anything but simple. A major issue is normally what will happen with the proceeds of the parents' home when they move out.

Sometimes, part of it goes to the child they are moving in with in exchange for a granny flat right. This may not sit at all well with other siblings who see it as the diminution of their own share of the estate. But that's just the start of it.

Let's face it, the parent may be very healthy now, but they will age and at some stage may need care.

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Who will be responsible for taking care of the parent as years pass and what will happen to mum if the family want to go on the world trip, and she is unable to go with them?

What will happen if the parent's care needs change and they cannot be safely looked after?

If the living arrangement continues for many years it may be necessary to consider what the consequences would be if the adult children divorce, or if one of those caring for the parent became ill or dies.

But a major issue here is the wellbeing of the parent. There may be reluctance at the time of the initial move and the family dynamics in the home they move to could be totally changed.

Part of this is due to lack of privacy, but also the extra conversations that need to be had to keep the house running. If family tensions arise this could become a nightmare.

In my view a much better option is to move to a community of connected like-minded people in the form of a traditional retirement village or the fast growing lifestyle communities.

A major part of well-being for retirees is their social network. By moving to a community they have a ready-made social network, regular outings, a visiting hairdresser, or possibly facilities like a heated pool and access to health and wellbeing programs.

It also prevents part of the proceeds of the parents' home becoming tied up in a granny flat with one child.

When the parent eventually moves to aged care if that becomes necessary, all or part of the price they paid to enter the community will be refunded to them. It is also important to check if the community has exit fees.

Above all it needs to be clearly accepted by all family members that a move by the parent to a new residence is a major event and everybody should get together and become aware of all the implications involved. Of course expert advice is essential.

Noel answers your money questions

Question

How can I legally reduce my assets to get a larger age pension?

Answer

There are many issues here. A common mistake made by pensioners is to value their furniture and fittings at replacement value - for Centrelink purposes they just need to be valued at garage sale value.

This puts a value of $5000 on most people's furniture. The same goes with motor vehicles which should be valued at the amount shown by Red Book. Remember that a $50,000 overvaluation of assets may cost $3900 a year in lost pension for an asset-tested pensioner.

It's common, when a couple are involved, for one partner to be of pensionable age and the other under pensionable age. By maximising the superannuation owned by the younger partner, and not starting to draw an income from that fund, the younger partner's superannuation will not count until they reach pensionable age.

There are now lifetime income products available where only 60 per cent of the sum invested is counted for the assets test until age 85 (and 30 per cent thereafter)- they can be extremely useful for asset tested pensioners.

You can also spend money on home renovations and travel, or even by changing houses to a more expensive one because right now the family home is an exempt asset.

But keep in mind that every $100,000 you spend in this way will increase your pension by $7800 a year if you are an asset tested pensioner- this means it will take 13 years for you to recover in lost pension what you would lose by spending $100,000.

You can also make gifts but take advice. If you are an age pensioner, you can legally gift up to $10,000 a year, but no more than $30,000 over a five year period. Gifts in excess of these limits will be counted as an asset for five years and subject to the deeming income test.

Question

Let us assume that the new proposal allowing most people to be able to contribute to super in some shape or form up to age 75 - whether they are working or not - takes effect from next July. Suppose a person is retired and they are drawing an account-based pension now.

If they suddenly found they had $90,000 available why can't the rules be changed to allow them to contribute that directly into their account-based pension instead of going to all the problems of opening a new accumulation account, and then starting a separate pension from the new accumulation account?

It seems like a lot of unnecessary work when it could be simply solved.

Answer

What you say makes perfect sense, and it would seem a sensible course of action. But the pension rules do not allow that to happen, and there are sensible reasons to have a clear distinction between pension accounts and accumulation accounts.

For example, what should happen to the minimum draw down requirements if you could increase the balance without stopping and restarting? What amount should be included in the transfer balance reporting?

One way to minimise disruption is to combine the balances during June when there will not be a need to make a minimum payment from the new combined pension balance. Reporting against the transfer balance will however still be necessary.

Question

I currently have two properties. One is for investment with a mortgage of $170,000, and the other ,which I currently live in, has a mortgage of $350,000.

My investment property is positively geared. People have been telling me to sell the investment and pay off the property that I live in, but I would like to refinance and use the money to purchase another investment property that is negatively geared. What should I do?

Answer

The tax benefits are the cream on the cake, and frankly I would rather have a property that was making me money than one that was losing money.

The key factor is the potential capital gain of the investment property you hold. If you believe it's reaching its peak, it may be worthwhile disposing of it, but you would need to take selling costs and possible capital gains tax into consideration when doing the numbers.

You could certainly refinance it and use the proceeds for another investment property, but given your high exposure to residential property now, a better alternative may be to refinance it and invest in a quality share portfolio.

Question

If a contract for our rental property is under vendor terms over a long period can the purchaser claim it as their principal place of residence for tax purposes.

Answer

Yes - the date of the original agreement is the appropriate date for tax purposes.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email noel@noelwhittaker.com.au