Wednesday, 7 May 2014

Strategy that may help to reduce aged care charges By Solomon Forman

Strategy that may help to reduce aged care charges

By Solomon Forman, Financial Planner and Accountant
(If you need advice on how to reduce aged care fees, you can contact Solomon.)

Aged care facility level of charges can be affected by the resident’s level of
income and assets.  Please refer to other articles on our website regarding aged
care to obtain an understanding regarding the charges and type of facilities.

In this article we look at a strategy that can be considered when a person’s
level of income affects his/her aged care facility charges.

The strategy:  Replacing a financial investment with insurance bonds held by a
private trust.

Description of the strategy:  Taking money from financial investments (which
can include bank accounts, term deposits, shares, managed funds, etc) and investing
in an insurance bond that is held in a private trust of the person.  As an example,
Steve (not his real name) holds $50,000 in a bank account in his name.  Steve
doesn’t use the income from the $50,000 and just keeps re-investing it into the
same bank account.  However when he is assessed for aged care charges the income
from the bank account will be assessed under the deeming rules.  If this assessed
income is affecting Steve’s aged care facility charges he can transfer the money
from the bank account into his private trust and invest the money into insurance bond.

Benefit of the strategy:  There is no income assessment for aged care facilities
when the money is held in insurance bond placed in private trust (if no money is
physically drawn out), so returning to Steve’s example above, once the money is
placed in insurance bond within private trust it will cease to be regarded as
income for him and therefore he may be entitled to lower aged care facility charges.

Points to consider:
(a)  The tax on insurance bond return is 30%.  If a person’s tax rate is lower than
that, he/she may need to consider the benefit of receiving a lower aged care charge
in comparison to a potential higher tax on the money invested into insurance bond.
(b)  If the only reason of establishing and maintaining a private trust is to
implement this strategy, one needs to consider the cost of establishing and running
a private trust in comparison to the savings that one can achieve in using this
(c)  If the financial investment is made up of assets that will create a capital
gains tax liability if it is redeemed, one needs to consider that in comparison to
the potential of savings by reducing the aged care charges.  For example, if the
financial investment was shares and these were redeemed to invest into insurance
bond, there may be a capital gains tax liability.

There are other strategies one can consider and we explain them in our other
articles on our website.  If you would like to discuss your personal circumstances
please contact us.

Please remember that when considering any financial strategy, it’s important you
receive advice from an expert because any strategy will have advantages and
disadvantages and it will need to be considered based on personal circumstances.

If you need advice on this matter, you can call Sol on 02 9369 2443 or alternatively
click here to set up a meeting.

Disclaimer and Warning
The information above is of a general nature only.  It should not be used as a source to make financial decisions.
It's also important to note that the legislation and figures related to this topic tend to change regularly and
therefore the information above may not reflect the current status.
We recommend that if you are looking for advice on this matter, you should contact us.