Note that the age pension is taxable.
Reverse mortgage & home reversion
Home reversion, unlike a reverse mortgage, is not a loan but the sale of a proportion of a person’s equity in their home.
Equity release products such as these require that independent legal advice be obtained. Your client and their family members may have been given the impression by a lender that the advice can be obtained in a few minutes. You need to ensure your client is informed and understands the complexity, pitfalls and future effects of these arrangements. What will it cost them? How will it affect their current and future finances and their retirement lifestyle?
See the Legal Practitioners’ Liability Committee Bulletins on equity release products.
You also need to ensure your client is entering into such arrangements without influence or external pressure. Interview your client on their own and keep thorough records of the advice you have given and the instructions received. (See Ensure your client has the capacity to make the decision.)
The assessment of your client’s assets for an accommodation bond may be affected by any lump sum received and how they use it.
You may need to refer your client for specialist advice to a financial advisor, an Elder Law specialist, or to the National Information Centre on Retirement Investments (NICRI). See Financial services in Resources.
Accommodation bonds
A family may wish to avoid paying an accommodation bond, but a bond may secure a better standard of accommodation (although it does not always do so). On the other hand, some families may wish to place more than the required bond payment into the aged care home as a way to ‘hide’ assets.
If an accommodation bond arrangement is entered into, it should be structured in a way that protects the interests of the older person, not their adult children. Sometimes your client may wrongly perceive these interests to be the same. They may choose to ignore your advice and wish to structure the arrangement to benefit others. You should nevertheless make certain you have advised them on all options.
- What are the tax implications of accommodation bonds?
- Is a house considered to be an asset if one moves into aged care?
- What if it is rented out or sold?
Capital gains tax
There may be capital gains tax implications for your client or their family members in selling their home, renting it out, or giving it or other assets away (for example, a property that is not their main residence).
Stamp duty
Inquiries need to be made to the State Revenue Office as to whether stamp duty is payable (by the person who has had property transferred to them).
Examples:
- A parent transfers their house to an adult child or a long-term lease is arranged. Stamp duty may be payable.
- A parent promises to bequeath their home to their adult child if they perform certain caring functions now. Stamp duty may be payable.