Alan Clarke: Care can impinge on assets

Instead of wasting asset money, spend it on home upgrades or valuable gifts for future use.

The facts and myths of resthomes ...

How many people end up in resthomes?

For a start, only one in 20 of all the people over 65 in New Zealand ends up in a resthome. That's only 5 per cent of the people over 65.

How many types of care are there?

There are many kinds of care available: resthomes, hospitals, dementia units and psychogeriatric care.

How much do they cost?

On average it seems to be about $45,000 a year. However it can be more if they need extra help, such as dementia or psychogeriatric care.

How much will the Government pay?

For a widow/widower or single person needing care, Winz will pay if your assets are below about $220,000.

In the case of a couple with one partner living normally at home, Winz will pay if your assets are less than $120,000, excluding car and house.

How can we hide the money and get Winz to pay?

You can't. It is illegal for anyone to deprive themselves of assets so they can get a benefit.

In other words, it is illegal to hide or get rid of money deliberately so that Winz has to pay the resthome fees. Remember that the Government does not really have any money so it will look for ways to tighten up on costs such as resthome fees.

That's not to say they won't pay; they will tighten up around the fringes to ensure that you pay if you can.

Should children panic about their inheritance?

If your mum or dad have enough assets they must pay the resthome fees, but they will continue to receive national superannuation.

Let's assume your mother is unwell and has to go into a resthome. She is a widow, has a $450,000 house, investments of $120,000 and the usual car and furniture.

She has to go into care for $900 a week and, because her assets are more than $220,000 she has to pay.

You have the power of attorney and must arrange her financial affairs to pay the $900 a week, or $46,800 yearly.

You sell her house, car and other bits and pieces, and so have a total of $600,000, which you invest carefully at 4 per cent gross return a year.

Her government superannuation continues to be paid -- but at the single rate, not the living-alone rate.

Cost at $900 a week: $46,800

$600,000 at 3 per cent in the bank: $18,000

National superannuation: $14,000

Shortfall: $14,800

$600,000 eroding at $14,800 a year will not make much difference to her assets or your inheritance unless she is in the resthome for a very long time.

How does it work if mum has less money?

If she had $400,000 in total assets, it might look like this:

Cost at $900 a week: $46,800

3 per cent of $400,000 yearly in the bank: $12,000

National superannuation: $14,000

Shortfall: $20,800

$400,000 eroding at $20,000 a year is still not too bad, given the average life expectancy of someone in rest home is 18 months. If and when her assets get down to about $220,000, Winz takes over paying the fees.

Why should the spouse at home suffer the stress?

It is much harsher (but usually rarer) when either husband or wife has to go into resthome care and their partner is still living at home.

If they have over $120,000, excluding home and car, they must pay. This can be hard, with the spouse usually at home, lonely, grieving and now having to pay $900 or more a week. However they can:

* Buy a funeral plan for $10,000

* Gift up to $5500 a year to children, grandchildren or caregivers

* Upgrade the car

* Paint the house

But do this within reason, especially as the spouse in the resthome may not necessarily live that long.

If the spouse at home is healthy or younger, he or she might live another 10, 20, or 30 years and still need that money.

How much should we run around in circles? We want the best care for them, but don't overreact -- getting rid of money is daft. Instead, study the rules and do your calculations.

Invest assets so they produce good income (watch the risk). Remember it may not be a long term situation, and thresholds for Winz subsidies are way higher than they used to be.

Alan Clarke is a financial and retirement adviser and author. His second book, The Great NZ Work, Money & Retirement Puzzle, is available at acfs.co.nz Alan is an independent authorised financial adviser (AFA) FSP26532; his disclosure statement is available on request and is free.