Moving into residential aged care can involve significant financial decisions. If you have a self-managed super fund (SMSF), there may be an extra layer of complexity to consider.
Your SMSF may be one of your largest financial assets. As a result, it is important to consider your superannuation arrangements when planning for aged care.
How will you pay for aged care accommodation?
One of the first decisions is how to pay for your room.
Room prices vary, but the average across Australia is now just over $600,000.
You can generally choose to pay for accommodation as a Refundable Accommodation Deposit (RAD). Alternatively, you can make ongoing Daily Accommodation Payments (DAPs) or use a combination of the two.
Each option can have different implications for your cash flow and overall financial position.
Could your SMSF help fund the move?
Your SMSF may form an important part of your aged care funding strategy.
For example, you might consider withdrawing money from super to help pay a RAD rather than selling other investments. Super withdrawals after age 60 may be tax-free.
However, it is important to consider what you may be giving up before withdrawing money.
A RAD is mostly refundable when you leave care. However, if you have withdrawn the money from your SMSF, you generally cannot simply put it back into the fund.
Consider tax and estate planning
Your super may be tax-effective during your lifetime. However, tax may apply when your super passes to certain beneficiaries, such as adult children.
These potential tax consequences may influence whether you retain money in super or use some of it to fund aged care.
This can also be a good time to review your binding death benefit nominations and broader estate planning arrangements.
Who will manage your SMSF in the future?
Another important consideration is what happens if you can no longer manage your financial affairs.
If illness or declining capacity means you can no longer perform your role as SMSF trustee, an appropriate enduring power of attorney can play an important role.
Think carefully about who you appoint. This person may eventually have considerable control over one of your largest financial assets.
Is your SMSF still the right structure?
A move into aged care may also prompt you to consider whether your SMSF remains appropriate for the next stage of your life.
This will depend on why you established your SMSF and the benefits it continues to provide. Every person’s circumstances will be different.
Need help with your aged care and SMSF decisions?
At Forman Financial Services, we provide specialist aged care financial advice. We can help you understand your options and consider how your SMSF fits into your broader financial position.
Contact us here to discuss your aged care financial planning needs.
Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions.
Legislation and figures relating to aged care and superannuation can change regularly. Therefore, the information above may not reflect the current position.
We recommend seeking professional advice before making decisions about your individual circumstances. If you would like advice on this matter, please contact us.