Aged Care: Should You Pay Your Parent’s RAD?

When an elderly parent needs residential aged care, one of the biggest financial hurdles is the Refundable Accommodation Deposit (RAD) - a lump sum payment that secures their place in a facility. In many cases, adult children step in to help cover this cost. While this can be a generous and practical solution, it’s important to understand the financial, legal, and social security implications before making such a commitment.

What is a RAD?

A RAD is a lump sum payment made to an aged care facility. It is fully refundable when the resident leaves the facility or passes away, minus any agreed-upon fees. If the RAD isn’t paid in full, the unpaid portion accrues interest through a Daily Accommodation Payment (DAP).

Why Families Choose to Pay the RAD

Families may choose to pay the RAD to:

• Avoid high interest costs associated with the DAP.

• Retain the family home, which might otherwise need to be sold to fund aged care.

• Ensure access to preferred facilities, which may require full RAD payment upfront.

Key Issues to Consider

Impact on Means-Tested Care Fees

While the RAD is exempt from Centrelink’s asset test for pension purposes, it is counted in the aged care means test. This can increase the Means-Tested Care Fee (MTCF) your parent pays.

Legal Ownership and Refund Rights

If a child pays the RAD, it’s crucial to clarify:

• Who owns the RAD? Is it a gift or a loan?

• Who receives the refund? If the parent passes away, the RAD is refunded to their estate unless legal documentation states otherwise, so ensuring you know who will be a beneficiary under their Will is vital.

To avoid disputes, families should consider formal agreements or legal advice to document the arrangement.

Family Dynamics and Equity

Pooling resources among siblings can be effective, but it’s important to:

• Ensure transparency and fairness.

• Discuss how the RAD refund will be handled.

• Consider the impact on inheritance and estate planning.

Final Thoughts

Helping a parent move into aged care is a significant emotional and financial decision. Paying the RAD can be a smart move, but it’s essential to understand the full picture - from aged care fees and Centrelink rules to legal ownership and family agreements.

Before making any payments, consider speaking with:

• An aged care financial adviser

• A Centrelink specialist

• A legal professional for estate planning

This ensures your generosity doesn’t lead to unintended consequences—and that your parent receives the care they need with peace of mind for the whole family. Amplify Wealth is qualified to provide Aged Care advice.

General Advice Warning - This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial or tax adviser before making any investment decisions.