Yet another issue that is increasing costs for aged care providers.
Operators tells us that they believe financial advisers are recommending to executors that they not claim the bond refund because they will earn the Maximum Permissible Interest Rate (MPIR) of 4.89% on the refundable amount after the prescribed period – well above the current RBA interest rates which are sitting at a record low of 0.25%.
“In simple terms, the Government is allowing estates to game the system for the benefit of beneficiaries and the detriment of aged care providers who by Government regulation are required to have these funds in an approved format,” the operator said.
We questioned several operators about the cost of holding onto these funds for them and they agreed it does come off their bottom line.
One CEO told us that they try to overcome the problem by informing the family’s solicitor that they will return the refund directly to them or to internal revenue.
“Why should we be paying for it?” they said bluntly. “We’re not a bloody bank.”
“In this new financial environment, we do see families doing more and more devious things. Of course, it is just a small percentage but it is financial abuse.”
Operators said they don’t object to an interest rate being applied – but feel it is wrong that the Government is allowing families to game the system.
They estimate that it can take around three months for estates to receive a grant of probate or letters of administration – during which the operator must foot the bill for the interest being accrued on the RAD.
“I would suggest that the interest rate be the RBA cash rate after 14 days of the grant of probate or letters of administration, NOT 14 days after being shown,” another said.
We spoke to Robert Craven, National Business Development Manager for Lifestyle and Care at financial management group Alteris.
Robert assured us that Alteris Lifestyle and Care advisers are not recommending this course of action to executors, but did agree that it could be an issue for operators.
“In summary, from the day following a resident’s death, interest accrues on the balance of the deceased resident’s RAD at the base interest rate, currently 3% p.a. reducing to 2.25% from 1 June 2020. Interest continues to accrue at this rate until probate or letters of administration have been granted,” he said.
“Following the grant of probate or letters of administration, the RAD plus the accrued interest must be paid to the deceased resident’s estate within 14 days. If the operator fails to do so, the rate increases to the maximum permissible interest rate (MPIR), currently 4.89%. The onus is on the provider to refund the RAD, not the executor to claim it. Normally a solicitor applies for probate or letters of administration and, once granted, the provider should transfer the funds to the Estate bank account or draw a cheque payable to the Estate of the Late xxxxxxx.”
Robert points out that there is no legal requirement for the operator to wait for a grant of probate or letters of administration before refunding the RAD.
“However, if they do so and another beneficiary successfully argues that they were entitled to all or part of the estate, the provider may find themselves having to refund the RAD a second time and then attempt to recoup the initial payment,” he concluded.
“This has occurred, hence the reluctance to refund RADs prior to the estate being formalised by a Court.”