Utilising the technical benefits of Challenger CarePlus
By Minh Ly, Technical Services Manager
Challenger CarePlus can be an attractive investment for residential aged care clients. It can help provide several benefits to clients including increasing Age Pension entitlements, reducing aged care costs, reducing tax payable and providing estate planning certainty.
Clients who do not receive the Age Pension due to higher means can also benefit from CarePlus’s competitive rate of return for a defensive asset class, its tax effective payments, and binding beneficiary nomination which can reduce probate fees.
This article will expand on these benefits and how they can help improve a residential aged care client’s cash flow.
Summary of CarePlus
CarePlus is a non-superannuation investment designed for people who are receiving or planning to receive government subsidised aged care services. An investment into CarePlus is an investment into two products:
? CarePlus Annuity, and
? CarePlus Insurance.
CarePlus Annuity is a lifetime annuity that provides fixed monthly payments for life. CarePlus Insurance is a single premium life insurance policy that provides a lump sum in the event of death.
The amounts allocated to each product will be provided on the CarePlus quote.
Together, these two products provide clients with regular payments for life to assist with funding aged care costs and returns 100% of the investment amount to their estate and/ or nominated beneficiary(ies) in the event of death, providing estate planning certainty.[1]
The regular payments and the lump sum death benefit are guaranteed by Challenger Life regardless of how investment markets perform, helping to give clients peace of mind.
More information on Challenger CarePlus can be found in the Product Disclosure Statement available on AdviserOnline.
Providing tax effective income
CarePlus can be a tax effective investment option for aged care clients. Unlike other types of non-superannuation investment income, only part of the regular payments from CarePlus is subject to tax. This is because of the availability of a deductible amount that reduces assessable income for tax purposes.
Assessable income from CarePlus = Regular payment less deductible amount. [2]
Example: $500,000 CarePlus investment [3]
Consider a $500,000 CarePlus investment for an 86 year old female. The amount assessable for tax purposes is calculated as follows:
CarePlus investment/death benefit = $500,000
CarePlus Annuity = $143,890
CarePlus Insurance = $356,110
Regular payments (p.a.) = $24,747
Deductible amount (p.a.) = $21,067 ($143,890 / 6.83)
Assessable income for tax purposes (p.a.) = $3,680
A Challenger quote will provide details of the investment amount allocated to the annuity component and insurance component. It will also provide details of the deductible amount.
Increasing social security benefits and reducing the means tested care fee
Aged care residents have the choice to pay for their accommodation as either a lump sum Refundable Accommodation Deposit/Contribution (RAD/RAC) or interest like Daily Accommodation Payments/Contributions (DAP/DAC) or as a combination of both. RAD/RACs are generally preferred as they are exempt from means testing for social security purposes, and the interest rate used to work out DAP/DACs can be high (current rate is 7.46% and increasing to 7.90% for those that enter residential aged care from 1 July 2023).
Many residents who pay a RAD see their Age Pension entitlement increase or they become eligible to receive the pension. For these residents, an investment into CarePlus can increase their Age Pension entitlement further because of its concessional assessment under the income and assets tests (see below).
Aged care residents can also be asked to pay a means tested care fee (MTCF). This is an ongoing fee and is a contribution towards the cost of their care in the aged care home.
Unlike other ongoing fees, the amount they can be asked to pay is based on the resident’s assessable income and assets. The higher their assessable income and assets, the higher their MTCF (subject to annual and lifetime caps). An investment into CarePlus can help reduce a resident’s assessable income and assets which will reduce their MTCF.
For social security and aged care means testing, CarePlus investments made from 1 July 2019 are assessed as follows:
Providing estate planning benefits
CarePlus has features that can help simplify the administration of the estate and help provide estate planning certainty.
Ability to nominate beneficiaries
Clients can nominate single or multiple beneficiaries or the estate to receive the lump sum death benefit. If no beneficiary is nominated, the death benefit will be paid to the estate.
Beneficiaries can be changed at any time and valid nominations are binding, providing certainty to clients and their beneficiaries.
Challenger will allow a Power of Attorney to nominate themselves as beneficiary if they have the legal authority under the Power of Attorney document. Challenger will require specific wording (or wording that is substantially similar in nature) to be in the Power of Attorney document before the nomination will be accepted. The required wording for each state is detailed in the additional information guide available on AdviserOnline.
The applicable Power of Attorney legislation is different in each state and territory and can change over time. It is strongly recommended that clients obtain independent legal advice regarding their legal obligations and the extent of their authority under the Power of Attorney document.
Probate not required
Probate is often an essential step required before an executor can administer a deceased estate and distribute it to the beneficiaries. It is a document issued by the Supreme Court confirming that the will is valid. It also confirms the appointment of the executor.
Without probate, institutions such as a bank or share registry may not be satisfied who has the authority to receive the deceased’s assets and may refuse to pay benefits.
When paying CarePlus death benefits, Challenger currently does not require probate if there is a valid beneficiary nomination or if the death benefit is payable to the estate and is less than $500,000. This can reduce the time it takes for beneficiaries to receive bequests.
Non-estate assets and reducing the cost of probate
Where there is a valid beneficiary nomination, Challenger will pay the death benefit directly to that beneficiary i.e. the death benefit is a non-estate asset and will not form part of the deceased estate. This can help simplify the administration of the estate and in some states where probate filing fees are dependent on the size of the estate, help reduce
the cost of applying for probate. Refer to the appendix of this article for the probate filing fees applying to each state.
Note, in NSW, notional estate laws exist. The Supreme Court, upon application by an eligible person, may look beyond the property and assets of the deceased estate where the actual estate is not sufficient to meet the family provision order.
Tax-free death benefits
On death, the total death benefit (CarePlus Annuity death benefit plus CarePlus Insurance sum insured) paid to the estate and/or nominated beneficiary(ies) is not subject to tax. This can help with providing estate planning certainty to clients and their beneficiaries.
However, if the investor resides in South Australia, stamp duty (currently 1.5% of the insurance premium) will be deducted from the total death benefit before it is paid to the estate and/or nominated beneficiary(ies).
Case study: Cindy
Cindy, age 85, is currently residing in an aged care home (in NSW). She has sold her former home and paid her accommodation in full as a RAD ($500,000). Her other assets include $800,000 in cash and term deposits and has other expenses of $100 per week in addition to her aged care fees. The table below compares Margaret’s estimated tax and cashflow position based on her current investments, or if she decides to invest $400,000 in CarePlus.
By investing in CarePlus, Cindy has:
? Increased her Age Pension by $3,900 and reduced her means tested care fee by $1,000 from the reduction in her assessable assets.
? Reduced her tax liability by $3,779 from the reduction in her taxable income.
? Increased her overall net cash flow by $8,679 in year 1.
In the event that Cindy were to pass away at the end of year 1, her NSW probate filing fees would be $555 lower if she nominated a beneficiary to receive her death benefit directly, reducing the size of her estate assets.
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Appendix
At the time of writing, the Supreme court filing fees for probate for each state is summarized below. Please note that there may be additional fees such, as solicitor’s fees and advertising fees, that can apply.
New South Wales
Probate (less than $100,000) = nil
Probate ($100,000 or more, but less than $250,000) = $802.00
Probate ($250,000 or more, but less than $500,000) = $1,088.00
Probate ($500,000 or more, but less than $1,000,000) = $1,669.00
Probate ($1,000,000 but less than $2,000,000.00) = $2,224.00
Probate ($2,000,000 or more but less than $5,000,000.00) = $3,707.00
Probate ($5,000,000 or more) = $6,179.00
Source: Current fees (nsw.gov.au)
Victoria
The gross value of the estate is less than $500,000 = $64.20
The gross value of the estate is $500,000 or more but less than $1,000,000 = $344.00
The gross value of the estate is $1,000,000 or more but less than $2,000,000 = $642.20
The gross value of the estate is $2,000,000 or more but less than $3,000,000 = $1,406.70
The gross value of the estate is $3,000,000 or more = $2,171.20
South Australia
On lodging an application for a grant of probate or administration in respect of a deceased estate the gross value of which:
is $200 000 or less = $886.00
is more than $200 000 but less than or equal to $500 000 = $1,773.00
is more than $500 000 but less than or equal to $1 million = $2,362.00
is more than $1 million = $3,545.00
Tasmania
For granting probate or letters of administration or for resealing a foreign grant:
if the gross value of the estate in Tasmania as stated in the short form affidavit is less than $50,000 = $476.00
if that gross value is equal to or greater than $50,000 but less than $250,000 = $860.20
if that gross value is equal to or greater than $250,000 but less than $500,000 = $931.60
if that gross value is equal to or greater than $500,000 but is less than $1,000,000 = $1,173.00
if that gross value is equal to or greater than $1,000,000 but is less than $2,000,000 = $1,485.80
if that gross value is equal to or greater than $2,000,000 but is less than $5,000,000 = $1,688.10
if that gross value is equal to or greater than $5,000,000 = $2,028.10
ACT
Probate Application, Letter of Administration or Reseal of Probate in respect of an estate the gross sworn value of which is:
Less than $50,000 = No charge
$50,000 or more, but less than $250,000 = $1,007.00
$250,000 or more, but less than $500,000 = $1,273.00
$500,000 or more, but less than $1,000,000 = $1,924.00
$1,000,000 or more = $2,561.00
Source: Fees - ACT Supreme Court
Queensland
A fixed fee of $766.80 applies in Queensland.
Western Australia
A fixed fee of $370 applies in Western Australia.
Northern Territory
A fixed fee of $1,350 applies in the Northern Territory.
[1] If withdrawn prior to death, the amount received can be lower than the initial investment amount. For?South Australian residents, stamp duty equal to 1.5% of the life insurance premium will be deducted from the CarePlus Insurance sum insured/surrender value.
[2] Deductible amount = CarePlus Annuity purchase price / life expectancy at commencement.
[3] Quote as at 29/05/2023 for an 86 yo female who resides in NSW.
[4] Quote as at 29/05/2023 for an 86 yo female who resides in NSW.
[5] For comparison purposes, assumed interest rate for cash and term deposits equals the rate of return for CarePlus.
[6] Rates as at 29/05/2023 for an 85 yo female who resides in NSW.
The information in this article is current as at 1 June 2023 unless otherwise specified and is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger, our, we), the issuer of the Challenger annuities (Annuity(ies)). The information in this article is general information only about our financial products and is intended solely for licensed financial advisers or authorised representatives of licensed financial advisers, and is provided to them on a confidential basis. It is not intended to constitute financial product advice. This information must not be distributed, delivered, disclosed or otherwise disseminated to any investor, without our express prior approval. Investors should consider the applicable Annuity Target Market Determination (TMD) and Product Disclosure Statement (PDS) available at challenger.com.au and the appropriateness of the applicable product to their circumstances before making an investment decision. This information has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should, therefore, consider its appropriateness having regard to these matters and the information in the Target Market Determination (TMD) and Product Disclosure Statement (PDS) for the applicable Annuity before deciding whether to acquire or continue to hold the product. A copy of the TMD and PDS is available at challenger.com.au or by contacting our Adviser Services Team on 13 35 66. Any examples shown in this article are for illustrative purposes only and are not a prediction or guarantee of any particular outcome. This article may include statements of opinion, forward looking statements, forecasts or predictions based on current expectations about future events and results. Actual results may be materially different from those shown. This is because outcomes reflect the assumptions made and may be affected by known or unknown risks and uncertainties that are not able to be presently identified. Where information about our products is past performance information, past performance is not a reliable indicator of future performance. Any illustrations involving taxation, Centrelink rules or benefits and/or Department of Veterans’ Affairs rules or benefits are based on current laws at the date of currency specified in this article and these laws may change at a future date. Neither Challenger, nor any of its officers or employees, are a registered tax agent or a registered tax (financial) adviser under the Tax Agent Services Act 2009 (Cth) and none of them is licensed or authorised to provide tax or social security advice. Before acting, we strongly recommend that prospective investors obtain financial product advice, as well as taxation and applicable social security advice, from qualified professional advisers who are able to take into account the investor’s individual circumstances. In preparing this information about taxation, Centrelink rules or benefits and/or Department of Veterans’ Affairs rules or benefits, Challenger relied on publicly available information and sources believed to be reliable, however, the information has not been independently verified by Challenger. While due care and attention has been exercised in the preparation of this information, Challenger gives no representation or warranty (express or implied) as to its accuracy, completeness or reliability. The information presented in this article is not intended to be a complete statement or summary of the matters to which reference is made in this article. To the maximum extent permissible under law, neither Challenger nor its related entities, nor any of their directors, employees or agents, accept any liability for any loss or damage in connection with the use of or reliance on all or part of, or any omission inadequacy or inaccuracy in, the information in this article.
Challenger Life is not an authorised deposit-taking institution for the purpose of the Banking Act 1959 (Cth), and its obligations do not represent deposits or liabilities of an authorised deposit-taking institution in the Challenger Group (Challenger ADI) and no Challenger ADI provides a guarantee or otherwise provides assurance in respect of the obligations of Challenger Life. Accordingly, unless specified otherwise, the performance, the repayment of capital and any particular rate of return on your investments are not guaranteed by any Challenger ADI.
Financial Adviser and Aged Care Specialist at MiQ Private Wealth
1 年Such a great product to have to assist my aged care clients.
Marketing | Brand | CX | Proposition Development
1 年Thanks Minh, for highlighting the technical benefits of Challenger CarePlus #boostagepension, #reducingagecarecosts, #estateplanningcertainty
Next Trend Realty LLC./wwwHar.com/Chester-Swanson/agent_cbswan
1 年I'll keep this in mind.