Things to consider when downsizing from the family home
Thinking about downsizing? There are many things to consider. This article looks at the various matters which should be considered when you are thinking about downsizing.
What are your options:
Staying where you are or purchasing a smaller home, where you own the freehold;
Moving into a retirement village, where you enter into a lease agreement;
Moving into a manufactured home in a holiday park, where you own the relocatable home and rent the land;
Moving in with a family member, e.g. granny flat arrangement; or
Moving into an Aged Care Facility, where you pay a refundable accommodation deposit (RAD) or a daily accommodation payment (DAP) or a combination of both.
Prior to making any decision it is imperative you know the financial implications of your decision to move. Having a good financial adviser, either a private adviser or you can organise to see an adviser at Centrelink, is a good starting point. Your decision to move, for example, may affect your pension entitlements from Centrelink.
Staying where you are or moving to a smaller home
This could be a move to a smaller home which could also be a strata unit. In this scenario, you own the freehold title to the land, have security to borrow against the home, if you wish, and the asset, as your principal home, is exempt from the Centrelink assets test. You also have the ability to prepare a Will leaving your home or its sale proceeds to specific people. Other things to consider if you wish to stay in your own home or move to a smaller home, include the ongoing maintenance as you get older, the burden which could be a financial one or one where you are relying on family. Also, you can be socially isolated in your own home, especially if you don’t drive anymore.
Moving into a retirement village
Moving to a retirement village can be a positive move for many people as they are usually surrounded by people of a similar age and many villages have common facilities and activities they can be involved with, if they choose. You also have the security of living in a village and the home is classified as your principal home for Centrelink purposes. The ongoing costs of maintenance in a village would be less than staying in your own home. The downside to moving to a retirement village is when you leave the village the departure fees can add up, e.g. some villages take 5% per annum of the ingoing contribution, say $620,000.00 up to a maximum of 7 years. Therefore, if you stayed in the village for more than 7 years, the departure fee would be $217,000.00. Often any capital gain or loss is shared 50/50 between you and the village, so if you receive $700,000.00 for your home when you leave the village you will receive 50% of the capital gain, i.e.in this example, $40,000.00 plus $403,000.00. Financially you are worse off than when you went into the village and therefore less money is available for your future care or to your estate. Also, you can’t use the home as security if you wish to borrow money as it is only a leasehold title.
Moving to a manufactured home
These types of homes are located in holiday parks or villages. You own the manufactured home and rent the land on which it is constructed. Centrelink deem it as your principal home and therefore the asset is exempt from the asset test. Sometimes you may be eligible for rental assistance. This is usually a cheaper option to a retirement village when purchasing, and there are no exit fees when you sell your home. Some of these villages have common facilities and therefore you have the option to join in and be part of the village community. These villages are not as regulated as retirement villages and therefore rent increases can occur, which can have negative effects on a potential sale, if the rent increases are too high.
Moving in with family (granny flat arrangement)
If you move in with family, are you going to pay them rent in return for them agreeing to put a roof over your head and support you in later life? Or, if money changes hands e.g. to construct a granny flat on the property for you, what is your security? Does your family transfer part of the property into your name to give you security, and do you do this as joint tenants or as tenants in common with the other party? If you are joint tenants and you die, then the property becomes the other joint tenant’s property. If you are tenants in common and you die, your share of the property is transferred in accordance with your Will. There can be implications to your estate depending upon which way you hold the property with another person. Tenants in common also allows you to secure your interest in the property in proportion to the amount of money you contribute.
What happens if you need to go into aged care at a later time or you don’t want to live with your family anymore? Or, what if the family want to move, or a member dies or they split up? All these scenarios can result in any agreement between you and family coming to an end and the sale of the property being necessary to enable you to move elsewhere. It can result is family friction and breakdown.
It is very important to document any agreement which you and your family reach, and to also check with your financial adviser about how your proposal might affect any Centrelink benefit.
Moving into an Aged Care Facility
In order to be able to move into an aged care facility it is necessary to have had an assessment by the Aged Care Assessment Team (known as an ACAT assessment) and also a Centrelink financial assessment.
Depending upon your financials, you either pay a refundable accommodation deposit (known as a RAD) or a daily accommodation payment (known as a DAP) or a combination of both. The RAD is fully refundable when you leave the facility, unless there are ongoing fees still payable. The refund is guaranteed by the Australian Government. The amount of the RAD varies between facilities and can be anywhere from $100,000 to over $1 million. You have 28 days after moving into the facility to decide how you wish to pay your accommodation payments.
You also pay ongoing fees to the facility, being a basic daily fee which is no more than 85% of the maximum single aged pension, as well as a means tested care fee, and fees for any extra services (these are optional services that a facility may provide, e.g. haircare services, podiatrist, etc.).
If you have any questions, please don’t hesitate to contact me.