Written

For

The

Australian

-

Dollars

&

Sense:

Solving

the

family

home,

aged

care

and

super

equation

Paying $95.91 a day in interest just because you haven't sold the family home yet? That's the reality facing many families when a parent moves into aged care and the refundable accommodation deposit (RAD) sits unpaid.

This week's column tackled two questions that come up constantly in my practice. The first was from Chris, whose 89-year-old mum needs to fund a $450,000 RAD from the sale of an $1.8m family home. My take? Holding onto the family home "just in case" is emotionally understandable, but rarely financially sensible. The probability of returning home is usually slim, and the cost of not paying the RAD — currently 7.78 per cent interest — quickly erodes wealth.

The good news is the downsizer contribution rule is tailor-made for situations like this. Provided the home has been owned for at least 10 years, up to $300,000 can be tipped into super within 90 days of settlement. It sits outside the normal contribution caps, has no upper age limit, and once inside super, an account-based pension can be started to turn off tax on earnings and generate an income stream to help cover ongoing aged care fees. Just remember the two-year Centrelink assets test exemption on the former home will eventually end, and costs may step up when it does.

The second question was about super's tax components — taxable, tax-free, and the rarer untaxed component. For most retirees drawing a pension under the $2m transfer balance cap, it barely matters. But it matters enormously for estate planning. When the taxable component is paid to a non-dependent adult child on death, it's hit with 15 per cent tax plus Medicare levy.

My preferred workaround is the withdraw-and-recontribute strategy — pulling out a lump sum tax-free and recontributing up to $360,000 under the three-year bring-forward rules. It's a pragmatic way to shift the balance from taxable to tax-free and reduce the so-called "death tax" for the next generation.