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Issue for retirees who have private companies and trusts

When approaching retirement it pays to look at the structure of your financial structure and work out whether it will continue to provide benefits after finishing working life or will it be a millstone.

There are issues for people who have private companies and trusts when they are applying for means testing. Means testing for private companies and trusts is complex and the assessments can and do go back 5 years. This means planning is required at least 5 years in advance.

The following real life case study shows how lack of planning can create problems down the track. This was nasty but avoidable.

Media release Private company and Trusts creating issues for retirees needing pensions and benefits V2

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Choices on offer when choosing your “Trusted” adviser

This article shows how your accountant might be able to offer more than just tax compliance services. If you struggle to trust the financial planning industry and its link to big financial institutions or think them too expensive, read this article.

The article is a summary of an earlier presentation I gave to the Institute of Chartered Accountants in Australia and which has been published as a condensed article in the West Australians Your Money section .Opinion piece accountant v financial planner Nov 2018

Crucial to compare retirement villages and crunch numbers before signing a contract

Check this table out to see how the exit fees range for different retirement village operators. There is also an example of how the calculator measures and calculates a contract.

This is a summary of actual contract terms from 6 different retirement village operators using the same price and time assumptions. There is also a copy of the calculator tool to show how the numbers are arrived at.

Comparison 6 VILLAGES

Primetime exit fee sample 5

The key points are:

Exit fees can cost over $200,000 after 10 years or more.

The difference from the highest to the lowest exit costs can be over $100,000.

As well as this, exit fees typically cost significantly less per year if staying long term so you need to make sure you will be happy and don’t want to exit early on.

Some contracts are capped over a shorter period but take higher percentages early on so estimating the length of stay is important when comparing.

As part of the Primetime planning system I developed a tool that could compare retirement village exit fees for different time frames. This is necessary as the contract terms vary significantly. As part of the testing I took six retirement village contracts and plugged the terms into the tool to make sure the tool could adapt to different terms.

It did work but the thing that was most amazing was the difference in fees that each village operator charged. Not only did they vary significantly but they also varied depending on how long a person stays. For example one village operator had significantly lower exit fees after 5 and 10 years but was the most expensive after 20 years.

As well as the exit fees the other key financial issues to consider are:

What would it cost (transaction costs) to sell my home and enter into a retirement village property?
If I free up cash on moving to a retirement village will this affect my age pension? For example a report indicates that a retirement village typically costs 64% of a home. That means 36% of the value of a home that is surplus will most likely end up in means testing after being invested.
How do the retirement village fees, charges and household costs compare to running my current home? Am I better off or will it cost me more each year?
How much would be left down the track if the retirement unit needed to be sold to fund aged care? What sort of standard of care could I afford?

If these matters are considered early on you are more likely to make the best choices both financially and from a lifestyle perspective.

Opportunity for Chartered Accountants in growing retiree market

This presentation was presented to the Institute of Chartered Accountants in Perth on 8 November 2018. It summarises the opportunities for accountants and some the issues faced in transforming traditional small accounting practices from being a provider of compliance services to that of being “trusted advisors”.Primetime presentation Institute of CAs Nov 2018

Here is a great example of how to learn and use new technology

A challenge for Primetime (and many other market place disruptors) is how to engage people in embracing new systems and technologies which involves learning something unfamiliar and doing things differently.

Even when there is a benefit, the fear of change can invoke paralysis.

Here is an example of how the progressive retirement village operator Belswan and Primetime have collaborated to make it work for Belswans’ residents.

Belswan are making the Primetime system available for their residents at no cost.
A number of tech savvy retirees volunteer to be come the superusers. These people typically enjoy new technology and have a real desire to embrace new and improved internet services.
Primetime train up the volunteer superusers so that they become knowledgeable and comfortable they can use the Primetime system and all its components.
The superusers then train up residents who want to use the system and support the residents.
Once the residents themselves become comfortable with the system and a critical mass of people are using the planning system, residents can effectively support each other and it becomes a commonly used planning tool.
Through the act of planning discussion naturally comes up about common planning topics and issues. The retirement village residents can then source assistance and guidance to address these matters. For example this might be through getting specialist advisors or using the network of support group .

Through effective planning as well as the obvious benefits of residents having peace of mind and making better planning decisions, there are the added benefits such as the residents and the operators developing stronger social bonds and support for each other.

Belswan hosted a community event in August where they asked Primetime to provide a detailed presentation on the Primetime planning system. When, during question time, the managing director Kevin Phillips announced to the group that they would provide the system at no cost to the residents, there was instantaneous rousing applause.

Here is the link to the event summary. https://belswan.com.au/news/belswan-hosts-primetime-presentation/

Belswan community event in Mandurah

Belswan Lifestyle Villages are hosting a free community event on 14 August at their facility, Belswan Village, 129 Murdoch Drive, Mandurah.

They have asked me to present on how the Primetime Planning system can help shape life through retirement.

This is a great way for the public to see first hand how the system works, what it does and touch and feel the product.

To attend follow the link but be quick, places are limited and the event is expected to be well attended.

https://belswan.com.au/events/

Aged care-avoid nasty financial surprises when entering aged care-the devil is in the detail

There can be nasty financial surprises when entering into aged care and the devil is in the detail

The financial consequences of inadvertently providing incorrect information to Centrelink were significant to the calculation of residential aged care fees and accommodation costs for a centenarian resident (Bob) when the provider said Bob owed an additional $215,000 in Refundable Accommodation Deposits (RAD) and $39,000 in backdated accommodation daily payments (DAPs) three years after Bob entered aged care.

Bobs family struggled to understand what was happening. They were now dealing with a recovery officer (debt collector) from the aged care providers head office in Melbourne and couldn’t get any clarity from either the accommodation provider, Centrelink, or the Department of Veterans affairs.

After exhausting their enquiries, and at their wits end, the family didn’t pay the extra fees but sought external professional help.

Here is what happened:

When Bob went into aged care in April 2015 his wife was living in the family unit in a retirement village, he had a service pension, some super income, and very little other assets.

After completing an enquiry form to the aged care provider, the provider assessed that Bob was a low means resident and wrote up the contract allowing for a maximum Daily Accommodation Contribution (DAC) of approximately $32 per day or a lump sum maximum contribution of $183,500. Bobs daughter Mary who manages Bobs affairs, signed as guarantor for Bob’s accommodation fees and had a caveat placed over her own home.

The low means assessment was due to the home being exempt from asset testing and only half of Bob’s service pension and super income being assessable.

In the same month after entering aged care Bob’s wife passed away.

About a month later Mary completed an asset and income assessment for Bob in accordance with the circumstances on the day she completed the form. On this basis Centrelink included the (capped) value of the residence of $162,815 and 100% of the income and other assets, and applied this to Bob’s means test at the date of entry to aged care.

The result of this was:

Bob was wrongly classified as a high means resident at date of entry to aged care. This is critical as the classification of high means or low means does not change during the life of the resident. High means and low means have a different fee structure for the accommodation costs payable to the accommodation provider.
The accommodation provider wasn’t getting the expected funding from the government
The contract allowed for the accommodation provider to vary the terms of the agreement if they were provided inaccurate asset and income information
The provider calculated that an additional $215,000 in deposit lump sum was owed from the date of entry and $39,000 in extra daily back charges, being about 3 years at 6.36%

In order to understand how to deal with this it was necessary:

To understand the process and timing of completing the asset and income forms correctly;
Understand the types of fees that can be charged for low and high means residents;
To understand how to read and interpret contracts;
Have a working knowledge of, or be able to interpret, the Aged Care Act and apply it to the circumstances;
To be able to source information from government websites; and
Be able to effectively communicate with department support staff.

In this instance all the information was eventually amended, resubmitted and recalculated. The result is Bob, in fact, had overpaid for his care and will be entitled to a partial refund.

When a family is helping a parent or grandparent into aged care this is a stressful time. It pays to get professional help early and understand the detail so that you don’t overpay for aged care fees.

For further media information contact

Peter Tyndall

0447 297 300

ptyndall@primetime.net.au

www.primetime.net.au

With the government making a statement about having a plan to tackle elder abuse by the end of 2018, are they biting off more than they can chew? See the following full media release by Peter Tyndall. published in part in the West Australian 26 February 2018.

Media release 22 February 2018

Timing for elder abuse reform ambitious- The need is to reduce the incidence of elder abuse right now

Whilst the Federal Government’s National Plan for tackling the issue of elder abuse is welcomed by peak bodies, the goal of addressing this by the end of 2018 is ambitious. Complex areas such as banking and legal reform are difficult to implement and the risk remains of over regulation which can create “gates but no fences”. Perpetrators of elder abuse find new ways to get around rules and regulations whilst genuine support is hampered by increasing red tape.

Peter Tyndall, the founder of the ElderPlan retirement management system asserts that, whilst it is inherently impossible to eliminate risk of elder abuse there are ways people can immediate identify risk factors of being exposed to elder abuse now or in the future so that practical strategies can be put in place to address or mitigate the risk. The strategies can be adopted by the elderly themselves (if capable), their family, advisors or organisations, using established online systems, processes and tools.

If the elderly are in a relationship, and both are capable, then they should each undertake the planning and compare results. This is especially necessary to prevent risk of elder abuse in the future.

This is how an online process driven systematic approach works;

Step 1. Complete an evaluation. It should address facts and feelings relating to current circumstances and provide a personal profile about how the person thinks and makes decisions.

Each aspect of the evaluation should identify a higher or lower level of risk to being exposed to elder abuse.

Examples of areas that should be addressed are:

Relationship status, family dynamics, accommodation, decision making, engaging others and anxiety.

The higher the risk the more important the need for a plan

Step 2. Complete specific planning components

The specific planning components build on the evaluation and should identify what steps have been put in place to deal with management of all financial and estate matters, health and wellness, roles and responsibilities and care and support. The components should address risk and cover both current and future scenarios.

For couples, compare the level of knowledge by each partner. For example if one partner has a high level of knowledge over financial and estate matters and the other partner very little knowledge, the partner with little knowledge is very exposed should something happen to the other partner.

Understand what you do and don’t know and address important areas where there is lack of knowledge or planning

Step 3 Develop your support network and put controls in place

Compile a list of all the people such as family, friends, advisors and service providers who are trustworthy, skilled, willing and able to assist.

Engage in frank discussions and make formal arrangements with those people and ensure those people are able to gain access to necessary information and records they need to properly administer your affairs. Ensure the help covers the emotional, physical and financial needs that are needed or may be needed.

Understand what people are willing to do and not willing to do.

One child of a client said openly, “I love you dad, but I’m not going to be the one that wipes your bum for you”.

In situations where other people have access to your money, assets or information, it is important to ensure there are sufficient controls in place to protect the information and assets from being used in a way other than intended. Make sure technology matters are addressed as this is a two edged sword in that it makes planning easier but also involves more risk.

This can be tricky, so it is always advisable to seek expert advice on this.

Expert advice and controls greatly reduce the risk of elder abuse for vulnerable retirees.

Step 4 Keep the plan up to date

Review the plan regularly to make sure it remains functional. Trigger health events or changing family circumstances can mean important changes are required so the plan is still effective. One example was a client who appointed her son as her power of attorney. When we reviewed her estate planning she realised that her son wasn’t available as he had been transferred to Kazakhstan for work.

Review circumstances regularly and update planning where required

The importance of engaging others to help as you age

The Parental Shift

As Australia’s population is ageing, a shift is occurring – planning for your own parent’s later years is becoming an ever-increasing reality. By 2060, a quarter of Australia’s population will be over 65. Source: By 2060, Australia’s population likely to reach 42 million, says Productivity Commission paper.

With this growth in the aged population, you may need to consider these options for your own parents.

1. Choice – if your parents’ lose their mental capacity, they may not be in a position to make decisions.

2. Family dynamics – who will take on the responsibility should one or both parents be incapacitated.
3. Tax consequences – If not planned for correctly it may trigger tax consequences which may have been avoided.
4. Estate plans – may be compromised with unexpected costs and can cause conflict at a later time.
5. Retirement plans – may not allow for the costs of aged care and result in financial hardship.

Family discussions are an important element of planning for the later years of your parent’s lives. Some of the questions that may assist in planning include:

1. What are the expectations each of you have in the event your parents’ need help?

2. What are your parent’s expectations for how they would want to handle long term care if it occurred?
3. Do your parents have adequate resources to cover the cost of paid caregivers?
4. Will daily care of a parent impact your own retirement plans?
5. Which of you would be the likely caregiver and why?

This discussion will lead to better planning so that your parents may enjoy the later years of their lives with grace and dignity – whilst avoiding potential family conflict.

If you would like to discuss your parents’ ElderPlan or start a pro active plan, please feel free to contact us or subscribe to one of our online self managed services.