When a family member pays the lump sum: getting it back, probate and fairness

Sometimes a son or daughter pays part or all of a parent's room deposit, often to avoid the daily payment while the family home is sold. It's a generous thing to do. But the money doesn't belong to the child in the eyes of the home, and that surprises many families.

This guide explains what happens to the money, and what families usually do to protect everyone.

The refund goes to your parent, not the person who paid

The room deposit is your parent's payment, whoever supplied the money. When it's refunded, the home pays the balance:

• to your parent, if they leave the home; or
• to their estate, if they've died.

It doesn't go back to the child who paid it. The deposit is also counted as your parent's asset for aged care fees, whoever paid it.

So money a child puts in could end up shared under your parent's will, or used to pay their other debts, unless something protects it.

Protecting the money: a written agreement

Families often deal with this by putting a written loan agreement in place before the money changes hands. It records that the child is lending the money to the parent and how it's to be repaid. Your parent's will can then be updated to match.

These documents need to be drafted properly. A loan or gift between family members can also affect the Age Pension, aged care fees and tax. Services Australia hasn't published whether a family loan used for the deposit can be counted as a debt your parent owes when fees are worked out, or how money a family member hands over for it is treated. Services Australia, or its free Financial Information Service, can say how it would apply to your family. A lawyer can draft the agreement and review the will. A licensed financial adviser can look at the money side.

If your parent no longer has capacity to sign, extra legal steps may be needed, so get advice early.

When siblings contribute different amounts

When several children put in different amounts, the worry is usually what happens at refund time. Because the refund goes to your parent or their estate, it won't automatically be split according to who paid what.

Things that help:

• Agree in writing who is contributing what, and how each amount will be repaid, before any money is paid.
• Keep records of every payment, with dates and amounts.
• Make sure your parent's will matches what was agreed.

Agreeing on these things early, in writing, can help avoid disputes later.

Probate and the refund after a death

If your parent dies, the home has to refund the deposit balance to the right person, which is usually the executor or administrator of the estate. To be sure, the home can ask to see probate (the court's confirmation of the will) or letters of administration (if there's no will).

• The refund is due within 14 days of the home being shown one of these.
• A home can choose to pay without them if it accepts other evidence of who is entitled, but it doesn't have to.

Probate rules and costs differ between states and territories, and small estates sometimes have simpler processes. A lawyer, or your state's probate registry, can explain the options.

Interest is added to the refund from the day after your parent's death, and at a higher rate if the home pays late. You can complain to the Aged Care Quality and Safety Commission.

Our guide to how and when the lump sum is refunded covers timing and deductions in more detail.

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