A client of ours recently questioned us about the Residential Agreement and Accommodation Agreement they were asked to sign when admitting his mum to residential aged care. In particular he was concerned about a clause stating that a resident may be required to provide a completed and executed Deed of Guarantee and Indemnity and that the facility reserves the right to ask that you provide somebody to guarantee your obligations under the Agreement. He wanted clarity on who is required to prepare the Guarantee and furthermore asked why a guarantee is required when a Refundable Accommodation Deposit has been paid. In his words â€œSurely the RAD is a guarantee in its own right?â€
To start with I need to point out that we are financial advisers â€“ not lawyers â€“ and we cannot and do not provide legal advice. We are, however, in a position to share some information which can place the issue of guarantees in perspective.
The indemnity clause is fairly standard. It appears in all Residential Agreements / Accommodation Agreements. One of the risks faced by residential aged care facilities is that the incoming resident will not pay their bills. I.e. the problem of bad debt. Non-payment of fees is a big concern for residential aged care facilities because not only does it happen all too often but dealing with it is very sensitive. The law protects the resident and the facility cannot simply evict a person who is not paying their bill (never mind the negative PR consequences that such an act would cause.) In the absence of the bill being paid the facility can resort to legal recourse to recover arrear fees and may attempt to arrange a transfer to another residential aged care facility with lower accommodation and additional fees.
The payment of monies towards a Refundable Accommodation Deposit (RAD) is not a guarantee. In the first instance the payment is in respect of accommodation only. There are other fees that are incurred by the resident for care (The Basic daily Care Fee and the Means tested Care Fee) as well as fees for additional services (such as hairdressing for example). Where these are not paid they cannot be recouped from the RAD. The RAD can only be used to fund accommodation and no other costs. Secondly the facility does not own the money paid as a RAD. Whilst they hold and manage the money they do so in a fiduciary capacity on behalf of the resident. They cannot use the money for any purpose other than to invest it in approved assets. Furthermore they are obliged to refund all the money within imposed time limits should the resident leave or pass away. The only situation where these funds can be accessed is where the resident asks for the facility to draw recurring accommodation payments (The Daily Accommodation Payment or DAP) from the Refundable Accommodation Payment. The simple rule is that monies allocated to accommodation can only be used to pay for accommodation.
A surprisingly high incidence of non-payment occurs where a close family member has been â€œmanaging the financesâ€ of the resident in an inappropriate way â€“ something known in the industry as Financial Abuse of elders. The most common form of abuse is family members taking control of their loved oneâ€™s income (usually children taking care of their parentâ€™s money). The children will often commingle their parentâ€™s income with their own, by placing it into their own bank account. It starts with the best intentions: The child will protect and manage those funds for their parents. Over time, their finances get confusing, and it is less clear who owns what. With time, the distinction between parentâ€™s money and childâ€™s money becomes blurred. The parent’s money is now their money, and with the typical stresses associated with debts and mortgages, it is not uncommon for children to use their parent’s income to supplement their own. The ultimate consequence is that the resident’s account goes unpaid. As an example, one of the biggest applicants to the Protective Tribunal are aged care facilities, who seek the appointment of an independent administrator, because their aged care fees have been unpaid for some time. This is usually a result of a child not paying the fees.
Given these factors it is common practice for residential aged care facilities to reserve the right to call for guarantees when a new resident is being admitted to a facility. There is nothing that sinister about it â€“ their intention is simply to protect themselves in the event that the person managing the residentâ€™s financial affairs ends up not paying the bills of the resident.