Aged Care: Planning Ahead for the People Who Matter
Part 4: Should We Sell Mum's House to Pay for Aged Care?
When an ageing parent moves into residential aged care, one of the first questions families often ask is what to do with the family home.
For some, the answer seems obvious. Mum is no longer living there, the house may be worth a considerable amount of money, and selling it could provide the funds needed to pay for her accommodation and ongoing care. From a purely practical perspective, it can appear to be the simplest solution.
But in my experience, decisions involving the family home are rarely that straightforward.
A property that has been owned for forty or fifty years represents far more than its current market value. It may be where children grew up, where Christmas lunches were held and where a couple spent most of their married life. For an older person who has already experienced significant changes to their health and independence, the prospect of losing that connection can be particularly difficult.
At the same time, keeping an empty property comes with financial responsibilities, and families need to consider whether retaining it is practical or sustainable.
What concerns me is when the decision to sell is made before anyone has properly examined the alternatives.
In Part 3 of this series, I explored the different costs associated with residential aged care and why families can face very different financial arrangements. This week, I want to focus on one of the largest decisions within that process: whether selling the family home is necessary, financially beneficial or even the most appropriate choice.
The assumption that the house has to be sold
I think one of the most common misunderstandings about aged care is that entering a residential facility automatically means the family home must be sold to pay for accommodation.
That simply isn't the case.
Depending on the person's financial circumstances, accommodation may be funded through a Refundable Accommodation Deposit (RAD), Daily Accommodation Payments (DAPs), or a combination of the two. Residents with limited means may qualify for government assistance with accommodation costs.
This means families may have more flexibility than they initially realise.
Consider a hypothetical situation involving a widowed mother in her late 80s who owns a home worth $1.8 million. She receives the Age Pension and has approximately $120,000 in savings. Following a decline in her health, she has been assessed as requiring residential aged care.
Her adult children begin investigating facilities and discover that a suitable room has an accommodation price of $550,000.
Their immediate reaction might be that the house needs to be sold to fund the deposit.
But the advertised accommodation price doesn't necessarily mean the full amount must be paid upfront. Depending on the arrangements available and her assessed financial circumstances, she may be able to meet accommodation costs through daily payments or a combination of payment methods.
That doesn't automatically mean retaining the house is the better option. It means the family should understand what each arrangement would involve before deciding that a sale is unavoidable.
The question should be broader than How do we find $550,000?
It should be What is the most appropriate way to fund Mum's care while considering her income, assets, future needs and wishes?
Selling the home may provide certainty, but at what cost?
There are situations where selling the family home makes good financial sense.
If the property is no longer needed, requires considerable maintenance and represents the majority of the older person's wealth, selling may release capital that can be used to fund accommodation and provide additional financial flexibility.
It may also remove the ongoing responsibilities of managing a property, particularly where adult children live interstate or have limited time to deal with repairs, insurance, rates and other expenses.
For some families, having the sale completed and the financial arrangements organised can provide considerable peace of mind.
However, the proceeds from selling a home do not simply disappear from the financial picture once they are used or invested.
Depending on how the money is held and what it is used for, the sale can change the person's assessable assets and income, potentially affecting Age Pension entitlements and aged care contributions.
For example, a home that previously received favourable treatment under certain means-testing arrangements may be replaced by cash or investments that are assessed differently.
The financial consequences can therefore extend beyond the immediate benefit of having sufficient funds to pay an accommodation deposit.
There may also be selling costs, possible taxation considerations and the question of how any remaining proceeds should be invested or managed.
None of these factors necessarily makes selling a poor decision. But they illustrate why the proceeds of a property sale should be considered as part of the person's overall financial position rather than simply as money available to pay an aged care bill.
What if the family keeps the house?
Retaining the property may be an option, particularly where the family wants to preserve flexibility or the older person is uncomfortable with the idea of selling.
Sometimes there is uncertainty about whether a move into residential care will be permanent. In other situations, a family may want additional time to understand the parent's needs, discuss the future of the property or consider the financial implications.
There can also be circumstances where retaining the home is especially important because a spouse or another qualifying person continues living there.
However, keeping a property doesn't mean it has no financial consequences.
Even an unoccupied house requires insurance, maintenance, council rates and other ongoing expenses. If the property is older, unexpected repairs can become costly, and an empty home may need regular attention to remain secure and in good condition.
Families also need to consider how accommodation payments and daily care expenses will be funded while the property is retained.
A person may own a valuable home but have limited accessible savings. If most of their wealth remains tied up in the property, meeting ongoing costs could become difficult without another source of income or capital.
There is also an important distinction between the treatment of the former home for aged care means testing and its treatment under Centrelink's Age Pension rules.
Under aged care means testing, the value of a former home may be included up to a prescribed cap where no qualifying protected person lives there. The Age Pension assessment operates under different rules, including circumstances where a former home may retain a temporary exemption.
The precise treatment depends on the person's circumstances and the rules applying to them.
I would therefore be cautious about assuming that keeping the property automatically protects pension entitlements or reduces aged care costs.
The decision needs to be examined from both a cash-flow and means-testing perspective.
Could renting out the house be a better alternative?
Another possibility is retaining the property and renting it out.
For families reluctant to sell, rental income may help meet ongoing aged care expenses while preserving ownership of the property.
At first glance, this can seem an attractive compromise. Mum continues owning the home, the property generates income, and the family doesn't have to make an irreversible decision immediately.
But as with most financial arrangements, the details matter.
Rental income may affect Age Pension entitlements and aged care means testing. There may also be income tax implications, property management fees, maintenance expenses, insurance requirements and periods when the property is vacant.
A house that appears capable of generating substantial rent may produce considerably less net income once these costs are taken into account.
Families should also consider whether the property is suitable for renting without significant expenditure. A home that has been occupied by the same person for several decades may require repairs, safety improvements or other work before tenants can move in.
And there is the practical question of who will manage everything.
An adult child may initially offer to handle the property, but that responsibility can become demanding when combined with work, family commitments and regular visits to an ageing parent.
In some circumstances, renting may provide a useful income stream and allow the family to defer a sale. In others, the financial and administrative burden may outweigh the benefits.
The decision should be based on realistic net rental income and the overall financial consequences, not simply the amount a real estate agent believes the property could achieve each week.
When Mum and Dad's circumstances are different
So far, I've mainly considered a situation involving a single parent. The financial and emotional considerations can be quite different when one member of a couple enters residential aged care and the other remains living at home.
Imagine a couple who have spent most of their retirement together in the family home. Following a significant deterioration in health, the husband needs residential care, while his wife remains independent and wants to continue living in their property.
In this situation, selling the home may not be appropriate, particularly when it would disrupt the living arrangements and financial security of the spouse who remains there.
The presence of a spouse in the home is also relevant to how the property is treated under aged care means testing.
But the family still needs to understand how the couple's income and assets will support two sets of living arrangements.
There may be ongoing household expenses, accommodation payments, aged care fees and additional personal costs. Depending on their circumstances, the couple may also be eligible for particular Centrelink assessment arrangements.
I think this is an important reminder that aged care financial planning is not simply about the person entering care.
It can also involve protecting the financial wellbeing of a spouse who may have many years of independent living ahead.
A decision that appears to provide an immediate financial benefit for one person should not unintentionally create difficulties for the other.
The emotional decision and the financial decision are connected
One aspect of these conversations that I don't think receives enough attention is how differently family members can view the same property.
For an ageing parent, the house may represent independence, identity and a lifetime of memories. Selling it may feel like accepting that a significant chapter of life has ended.
For adult children, the property may represent a considerable financial asset that is expensive to maintain and could be used to provide better care.
Neither perspective is necessarily unreasonable.
The difficulty arises when families approach the conversation as though there is only one correct answer.
I have always believed that financial advice should take account of what money means to the person making the decision. Two families with identical assets and income may reasonably reach different conclusions because their priorities, circumstances and preferences are different.
One older person may feel relieved to sell the home, knowing the proceeds will help fund their care and remove a responsibility they no longer want. Another may place considerable importance on retaining ownership, even if doing so involves some additional cost.
Provided the financial implications are understood and the arrangement is sustainable, those preferences deserve consideration.
Of course, the older person's ability to participate in decisions must also be respected. Where someone has the capacity to make their own financial decisions, their wishes should remain central to the discussion.
If they are unable to make particular decisions, the family needs to understand who has the appropriate legal authority to act and what obligations apply.
A family relationship alone does not automatically give someone the right to sell a parent's property.
Why I encourage families to compare the options first
When advising families about aged care financial decisions, I think the most useful starting point is to compare what the different arrangements might mean over time.
Rather than concentrating exclusively on whether the property should be sold, consider several possible scenarios.
What would happen if the house were sold and part of the proceeds used to fund a refundable accommodation deposit? How much income would remain available, and how might pension entitlements and aged care contributions change?
What if the property were retained and accommodation costs met through daily payments? Would the person's income and accessible savings be sufficient to support that arrangement?
Could renting the property provide a sustainable alternative, and what would the likely net income be after expenses and any changes to government entitlements?
These are not simply calculations about which option produces the highest balance at the end of the year.
They are also about liquidity, financial security, future flexibility and the ability to respond if circumstances change.
For example, a family may prefer to preserve a substantial amount of accessible capital rather than commit most of it to an accommodation deposit. Another may value reducing ongoing accommodation payments and simplifying the person's finances.
The appropriate choice depends on the complete financial picture.
I would also encourage families to consider the potential duration of care without assuming they can predict exactly how long it will be needed. A funding arrangement that appears manageable for twelve months may look quite different when assessed over several years.
This is where careful financial modelling can help identify risks and trade-offs that may not be obvious during an initial family discussion.
Don't let urgency make the decision for you
One of the reasons I wanted to bring this aged care series forward before Christmas is that significant decisions can become more difficult when families feel they have very little time.
An unexpected hospital admission or sudden decline in health may create an immediate need to arrange suitable care. Understandably, families can feel that everything else must be resolved at the same time.
But arranging residential care and deciding the long-term future of the family home are not necessarily decisions that must be completed together.
There may be ways to fund accommodation while the family considers its options, although the suitability and cost of those arrangements will depend on individual circumstances.
That additional time can be valuable.
It allows families to obtain appropriate financial and legal advice, understand the applicable aged care rules and discuss the older person's preferences without feeling that a property sale is the only way forward.
It also reduces the risk of making a major decision based on incomplete information.
I would much rather see a family take the time to understand its options than rush into selling a property simply because someone has suggested that aged care must be funded through a large upfront payment.
The family home deserves more than a quick financial calculation
The decision to sell, retain or rent out a family home can influence an older person's financial security for the remainder of their life.
It may also affect a spouse, adult children and the family's ability to respond to changing circumstances.
That is why I don't believe there should be a standard answer to the question of whether Mum's house should be sold to pay for aged care.
Sometimes selling will be the most practical and financially appropriate option. Sometimes retaining the property will provide benefits that justify the additional responsibilities. And sometimes renting it out may offer a useful balance between generating income and preserving ownership.
The important thing is understanding the consequences before making the decision.
For families approaching this situation, my advice is to avoid treating the family home simply as the source of funds for an aged care accommodation payment.
Look at the broader financial picture. Consider the person's income, assets, pension entitlements, ongoing care expenses and the alternatives available. Just as importantly, understand what the property means to the person who owns it.
The objective should be to support appropriate care while preserving as much financial security, dignity and choice as reasonably possible.
The question isn't simply whether you can afford to keep the family home. It's whether keeping or selling it is the right decision for the person whose future you're planning.
If your family is considering aged care and you're uncertain about what to do with a parent's property, you're welcome to reach out to me directly on LinkedIn for a confidential conversation about the financial implications and the options worth exploring.
Next in our aged care series: Part 5, Staying at Home or Moving Into Care: How Do You Decide?
General information only. This article does not take account of individual objectives, financial circumstances or needs. The treatment of property, aged care accommodation payments, Age Pension entitlements and taxation depends on personal circumstances and the applicable rules. Consider obtaining appropriate financial, legal and taxation advice before making significant decisions.