How much can you gift without affecting your Pension

One of the questions we often hear at AgedCare101 is: “Can I gift some money to my children or grandchildren without impacting on my Pension or aged care costs?”

If a person wants to “gift” assets to family or friends, it could potentially affect your pension and/or aged care costs so it is important to understand the implications of any gifting.

 The gifting rules apply for Pension and Aged Care purposes only, therefore, if you do not receive a means tested pension from Centrelink or Department of Veterans Affairs (DVA), the gifting rules do not apply, and you are able to gift assets without it affecting the individual financially, said Mitchell Haim, General Manager, Balance Retirement & Aged Care Specialists.

 For Pension Purposes

When gifting assets, the gift is counted for five years and is then forgotten. Many people are under the assumption that you cannot gift more than $10,000 per year which is incorrect, you can according to Mitchell.

The rules state that there is no limit to how much someone can gift, however if an individual was to gift any more than $10,000 in a financial year or more than $30,000 over a five-year period, it would then result in Centrelink counting any excess of the gift over the $10,000 or $30,000 over five years as if the individual was to still have that asset and treat it the same as if it was money in the bank.

 If gifting an asset that Centrelink/DVA are currently counting as an asset for a means tested Pension (money in the bank or shares) then the Pension should not be affected negatively and could actually increase for someone receiving a part Pension.

 

However, if you gift an asset that Centrelink does not count as an asset (for example: your home), then all of the value of the home less than the first $10,000 will be counted and a person could lose the Pension immediately.

If someone is not receiving a Pension at all, and gifts assets to family, then after five years that asset is not counted as their asset and this could potentially allow that individual to then receive some sort of means tested Pension.

 For Aged Care Purposes

Due to the fact that the Commonwealth Government subsidises residential aged care, then gifting assets to try and gain a better financial outcome in aged care is subject to the same rules as for Pension purposes.

“We have seen many clients who were advised by family or friends to ‘transfer Mum/Dad’s home to family, which will save you from paying an Accommodation Payment’. This is incorrect, as for pensions and transferring the home (an asset which is normally not counted), would then be counted as a ‘deprived’ asset by Centrelink and consequently the Pension would be lost and the aged care fees would increase significantly,” Mitchell said.

 

Granny Flat Right/Agreement

Centrelink and DVA have what is known as a “Granny Flat Right or Agreement” which provides alternative options when gifting assets that Centrelink or DVA do not count (for example, the house).

 This can provide individuals a number of options to stay out of residential aged care longer and to possibly gift money to help family financially.

If you sell your home and gift some or all of the proceeds to your children, and as long as the children give you the “right” to live in a property that they own for the rest of your life, then this an alternative to the regular gifting rules.

If you transfer ownership of your home to family and they give you the “right” to live in the home you transferred to them or another property they own for the rest of your life, this is another alternative to the regular gifting rules

 

If you purchase a property in someone else’s name (e.g. family) and they give you the right to live in the home you purchased for them for the rest of your life (or alternatively that family members principal place or residence or another home they own), this is also another option to the regular gifting rules

“There are many rules to abide by when completing a Granny Flat Right/Agreement,” said Mitchell, “and it is wise to proceed with advice from an expert in this area as you need to be aware of the rules and other implications such as:

  • The reasonableness test,

  • Capital Gains Tax,

  • Possible stamp duty.

  • Possible land tax,

  • Moving out of the granny flat arrangement within five years, and

  • The amount a person pays for their granny flat.”

 

To discuss your aged care financial planning needs, contact Mitchell Haim and his team at Balance Retirement & Aged Care Specialists balanceacs.net.au – 1300 556 287.

 

This information is for general purposes only and not financial advice. We make no guarantees about the accuracy or completeness of the content. Consult a financial professional before making any investment decisions.

 

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