Giving the home to family or borrowing against it: what to know first

When a parent needs care, families sometimes wonder about two things. Could the house be passed to the children now, so it isn't counted? Or could the family borrow against it to pay the fees and keep it?

Both are big steps with lasting effects. This guide explains the rules that apply, so you know what to ask before anything is signed.

Giving the home away doesn't take it out of the means test

The aged care means test and the Age Pension both use the same gifting rules. A gift is anything your parent gives away, or sells or transfers for less than it's worth. That includes the house, part of the house, or money.

Small gifts are allowed without any effect:

• up to $10,000 in a financial year; and
• up to $30,000 over five financial years.

Anything given above those limits is still treated as your parent's asset for five years from the date of the gift. It's also deemed to earn income over that time. So both the aged care fees and the pension are worked out as if your parent still had it.

What that means for the house

Transferring the home to a child, or selling it to them cheaply, would usually be a large gift. For five years, most of its value would still count for your parent. That can mean more is counted than if they had kept it. While your parent owns the home, it's only counted for aged care fees up to a cap, and it may not count at all if a partner or another protected person lives there. Those protections only cover a home your parent still owns. Once the home has been given away, the value handed over, less the gifting limits, is counted in full for five years. There's no cap on it, and it counts even if a partner is still living there.

A transfer can also bring stamp duty, tax and family-law questions, and it can't easily be undone. That's why it's worth getting advice from a licensed financial adviser and a lawyer first.

Selling the home for less to a child

Selling to a family member at a discount is treated the same way: the gap between the price and the home's value counts as a gift.

Borrowing against the home

Some families look at borrowing against the house to pay the daily payment or the fees, and keep the home. There are two main kinds of loan.

• The Home Equity Access Scheme. This is a government loan run by Services Australia, for people of Age Pension age who own property in Australia. It can be paid as fortnightly amounts, lump sum advances, or both. Interest is charged at 3.95% and compounds every fortnight on the balance until the loan is repaid, usually when the home is sold or from the estate. The scheme has a no negative equity guarantee.
• A reverse mortgage from a lender. This is a commercial loan with its own interest rate, fees and conditions.

Both loans eat into the equity left in the home over time.

How a loan can change the fees and the pension

A loan can touch the means test in two ways.

• The money borrowed. If loan money sits unspent in the bank, it's part of your parent's savings. It can be counted as an asset and deemed to earn income, like any other savings.
• The debt on the home. For aged care fees, a loan secured against the home may reduce the value that's counted, but how this is applied isn't clearly published, so confirm it with Services Australia. But the home is only counted up to $219,858.40 anyway, so the debt only changes things if it takes your parent's equity below that limit. If a partner or another protected person lives in the home, it isn't counted at all, so the debt doesn't matter. A loan taken out for someone else's benefit, such as a child, doesn't reduce the value. Check with Services Australia before borrowing.

These are credit products. Before signing, it's important to understand the total cost over the years your parent might need care.

Who to talk to first

• Services Australia's free Financial Information Service can explain the gifting rules and the government loan scheme.
• A licensed financial adviser who specialises in aged care can look at your family's whole situation. For a commercial loan, a licensed credit adviser can compare the options.
• A lawyer should be involved before any transfer of property, and can explain how it affects your parent's will and the rest of the family.

Moneysmart's aged care page also has general information on paying for care.

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