Rising life expectancies mean families need to talk about age care plans sooner rather than later

Rising life expectancies are proving a special challenge for baby boomers who find themselves needing to no only think about funding their own aged care, but that of their parents too. Picture: Shutterstock.
Rising life expectancies are proving a special challenge for baby boomers who find themselves needing to no only think about funding their own aged care, but that of their parents too. Picture: Shutterstock.

Rising life expectancies are proving a special challenge for baby boomers.

Many of them are caught between a rock and a hard place: their kids won't leave home and their parents won't die. And to make matters worse, parents are often not limited to just two people -there may be four, or even more if blended families are involved.

The outcome for many baby boomers is that their parents become dependent, or at least reliant, on them - and not necessarily at the same times.

This creates particular challenges for retirees in responding to their own needs and dealing with the complexity of the needs of various parents.

The challenges are wide-ranging, including both physical and mental health of the parents, and serious relationship breakdowns if a couple cannot agree on the best course of action for caring for the ageing parents of one or both of them.

Elder lawyer Brian Herd, who I quote regularly in my question-and-answer columns, is an expert in this field, and has just released a brilliant book, The Ageing Parent Trap, which explores the myriad issues that can arise as parents get older.

Herd points out that most Australians have an aversion to confronting the future, let alone getting advice about it.

At most, they will probably get financial advice on big events such as investing their superannuation when they retire, but few give much thought to funding their own aged care, much less planning and funding their parents' aged care.

What I particularly like about The Ageing Parent Trap is that it is chock full of real-life examples of problems caused by omission and commission - some of which were solved easily and some of which caused ongoing problems.

A major problem is that life can change in a moment. Herd describes a typical situation - a man is going busily about his day when the phone rings and he hears those fateful words: "Mum's had a fall and she won't be coming home."

Suddenly, major issues leap to the fore: Where will she live? Who will take care of her? Where will the money come from?

And other issues may quickly spring to light. Children may be spread around the country - or the world. Some are keen to be involved; others are not. And they may have very different ideas about what the best solution looks like.

It can quickly develop into a bunfight as siblings argue about what should happen next.

These scenarios can lead to failed families, imploding relationships, and sometimes leave the parents hung out to dry while the children are fighting it out. Family mediation may be required.

It's a grim scenario, but taking reasonable steps to prepare for it usually leads to significantly better outcomes for all involved.

Herd recommends the best place to start is with open dialogue among parents and their children about what should happen if the parents need help. This would include the parents preparing wills, enduring powers of attorney and advance health directives - and keeping them up-to-date.

It may not be easy - many parents will be in denial about the need to discuss such issues. But conversations now can prevent all sorts of issues later; when the inevitable happens at least family members have a basis for agreeing on the best course of action.

Aged care is not free, nor is it simple. And it can be complicated, not just by the system, but by the parents' circumstances.

For example, they could be separated by circumstance if one needs to go to aged care and the other remains at home - as a result, their cost of living would almost double.

Then, if there's a family home, children face the classic conflict between preserving their inheritance on the one hand, and funding their parents' aged care on the other.

Residential aged care is not an attractive option, and home care packages are rationed like hens' teeth. The result is an increase in family care - families caring for parents, often with parents moving in with family members, or vice versa. This is a complicated legal financial and social dynamic with lots of tributaries, and is fraught with family cleavages.

I appreciate this is a difficult topic but it's better to face it now than later. The reality is that many adult children will be forced, often urgently, into their ageing parents' lives and often into their financial lives.

It gives "family-planning" a whole new meaning. Herd's book is a great resource to help you plan now to mitigate huge problems later.

The Ageing Parent Trap is available at most bookstores or online.

Noel answers your money questions

Question

Currently my spouse is my binding nominee. Should she pre-decease me would the balance of my super account go to my estate?

What would be any tax implications when my two sons would be beneficiaries of my estate in equal shares.

Answer

Superannuation left to a dependent is tax-free - but the taxable component of your superannuation left to a non-dependent is liable to the death tax of 17 per cent (15 per cent plus Medicare 2 per cent).

Therefore, unless your sons were dependents, which is probably unlikely, they would be liable for the death tax on the taxable component of your superannuation.

The way to get around this is to withdraw your superannuation tax-free and give it to your sons when you think your death is imminent. Of course, before withdrawing your superannuation, you should make sure that there is no insurance inside the fund because the withdrawal would cancel it.

Question

I am confused about the 15% tax on earnings on your superannuation when it is in accumulation phase.

If I had $750,000 in my fund a year ago and due to Covid it drops down to $650,000, and then bounces back to $700,000 will the tax office treat that $50,000 as income and levy a 15 per cent tax, even though I have still gone backwards. Clarification would be most appreciated.

Answer

The 15 per cent tax on your fund is levied on the taxable income of your fund, and this income includes any concessional contributions that may be made by you, or on your behalf by an employer.

But much of the gain in a superannuation fund could be from increased values in assets such as shares held by the fund, and such gain, if unrealised, would not form part of the fund's taxable income.

Therefore, your understanding is not correct - there's much more to it than simply a change in the funds balance.

Question

I am 48 years old and married. I have two investment properties with a combined value of around $1.5m and related investment mortgages totalling $750,000. In addition I have a $130,000 blue chip share portfolio invested in my (currently unemployed) wife's name.

Our family home is valued at around $900,000, and has a mortgage of $130,000. Is there a way of transferring the debt from the family home to either the investment property or against the share portfolio, so the interest can be deductible?

Answer

The only way out is to sell investment assets and use the proceeds to eliminate the housing loan. Then you can borrow back against that house to buy other investment assets.

As the purpose of the second loan is for investment the whole of the interest on that loan would be tax deductible.

But, before you take any action you could check out what transaction costs and capital gains tax is involved. It is possible that the costs may outweigh the benefits.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Send questions to noel@noelwhittaker.com.au.