What is an aged care bond?
When an elderly person enters into an aged care residential facility (ACRF) they may be asked to pay an aged care bond or Accommodation Payment. This is sometimes also called a RAD, which is short for Refundable Accommodation Deposit. It is colloquially called a bond. The amount the resident pays depends on the ACRF; the price is set by the ACRF and is usually a function of the location, the room size and type and the state of the ACRF. Think of a bond as the capital cost of entry into aged care – like paying for a house. In addition to paying a bond, the resident will also have to pay daily costs of living and care. To find out more about those daily costs of living, see our earlier articles.
Also you will need to know about placement, so go and read our post “What is aged care placement?”
If a resident has very few assets, they may not be required to pay a bond. Our most recent article explains more about that.
When and how does an aged care bond have to be paid?
The resident does not have to have ready cash to pay the Accommodation Payment on the day they move into care. Read on to understand what happens if they do not have the ready cash.
The Accommodation Payment can be paid wholly or partly in cash. The amount that is paid in cash is called a RAD. The ACRF gets to keep the income from the RAD whilst it holds the RAD.
Interest is payable on any amount of the Accommodation Payment that is not paid as cash from the date the resident moves in permanently usually at the rate fixed by the Government. At the moment that rate is 5.76% per annum. That rate is reviewed every quarter. The amount paid as interest is called a Daily Accommodation Payment (DAP) and is calculated by multiplying the outstanding amount of the Accommodation Payment by the current interest rate and dividing by 365 (or 366 in a leap year).
Selling Your Home To Pay The Full RAD
Quite often, a resident will move into care without having the ready cash and needs to sell the home to pay the full RAD. They might have a bit of cash to contribute to a RAD whilst the home is being sold. In that case, the resident would pay interest on the outstanding amount until the sale of his home settles and he can pay the balance of the Accommodation Payment as a RAD.
Here is an example. George has moved into an ACRF and has agreed an Accommodation Payment of $500,000 for his room. He has $200,000 in available cash but needs to sell his house to pay the whole of the Accommodation Payment as a RAD. He decides to pay $150,000 as a RAD straight away so he can keep some money to pay other expenses such as getting the home ready for sale and selling the home. So, until he receives the money from the sale of his home, he will pay $55.08 per day DAP ($350,000 x 5.76% /366). Once the sale of his home settles and he receives the proceeds, he will pay the remaining $350,000 as a RAD, and he will not have to pay any more DAP.
Finally, the resident has 28 days after moving in to decide how he or she wishes to pay the Accommodation Payment. Once a decision is made on how the resident would like to pay the Accommodation Payment, he or she then has 6 months to pay the agreed RAD. The RAD can be topped up to the full amount of the Accommodation Payment at any time, even outside that 6 months.
Is the bond guaranteed?
Yes the RAD paid to an ACRF is guaranteed by the Federal Government and, in most cases, the resident or his estate will receive the whole amount back. The amounts that are deducted are unpaid fees and charges and, in some cases, ACRF’s charge a refurbishment fee which they deduct from the RAD. Make sure that the facility you are paying a RAD to is an ACRF. There have been instances where a facility has taken a bond but that facility is not an ACRF which means that the bond is not guaranteed. You can check on the myagedcare website or ask the facility if you can see its certificate stating that it is an ACRF.
What does the ACRF do with the bond?
Under the relevant legislation, the ACRF is only allowed to use the RAD for limited purposes, including capital expenditure, or invest the RAD in approved investments. The ACRF must comply with mandated prudential standards when investing RADs. The ACRF keeps the income earned on those investments. A resident is entitled to receive information from the ACRF about its RADs, including copies of the audited accounts on request.
When does the bond get returned?
The RAD is returned within 14 days of:
- the resident leaving the ACRF; or
- if the resident has passed away, a copy of probate being provided to the ACRF. In very few cases, usually only if the RAD is relatively small, the ACRF may not require probate. Probate can take quite a while to obtain and the ACRF will continue to keep the income on that RAD in the meantime.
If the ACRF does not meet these timeframes, it has to pay interest to the resident or his or her estate on the amount of the RAD at the rate fixed by the Government. That rate is currently 3.75% per annum and is reviewed quarterly.
If you require further information or need assistance, contact us on 1800 744 676 or at firstname.lastname@example.org.
Until next time
Sara and Margaret