If you have an elderly family member, who has access to the Governments Aged Pension entitlement then this is for you.
Recently we had an 82-year-old mother is selling her to move in with their brother.
She then wanted to gift money to each of each her adult children and wanted to do so without impacting her benefits so thankfully she came in seeking some clarity around the gifting rules and the implications of doing what she wanted to such as:
How much can she gift?
How much should she invest and where?
Firstly it was important to acknowledge what a great cart of generosity it was, too many times we see people grimly hanging onto money in excess of their reasonable needs.
However, as generous as the act is, we felt we need to point out a few things.
The first thing we need to point out is that the world has changed and regardless of what we think, we are living longer and we need to change our views towards the transition of money to our kids.
So the big thing is to ensure that she is financially secure and has a financial plan for the path to death. This includes the possibility of aged care and high-care accommodation costs.
Next, it is essential to understand that any gifts are dealt with under the harsh-sounding “deprivation provisions”.
It may be difficult to understand and in trying to understand it all we may not actually see the commonsense in the rules but whilst giving piles of unwanted money to the children, then getting a full pension, may not seem a bad-sounding strategy (as long as the kids don’t blow the money) we need to remember that there is a limit of $10,000 a year, with a $30,000 limit over five years.
Anything gifted away above these limits is calculated as being her asset and the income test applies.
So the key here is how much money was being received and how much was she wishing to gift.
Without going into too many of the specifics for our client, who had 6 children, gifting $10,000 in year one isn’t a problem, but $1666 for each of the six children is not exactly a fortune. So the question that needed answering was, “What was she hoping to achieve?”.
We find most of the time that some people can value the pension emotionally more than what financially makes sense, but we are emotional beasts and it’s hard to navigate these emotions on our own.
If this sounds familiar to you as an Aged Pension benefactor or maybe you’re the child in the equation, I’d suggest seeking professional financial advice.
In the case of our client, the advice helped her get clarity on how she could answer the important question above and as such we were able to make some recommendations as to some alternative strategies that will help the impact she was hoping to achieve a bigger, more lasting gift in the future.
Written by the Founder & Money Coach Conrad Francis.
To book a session to review your wealth creation & retirement plans contact Conrad directly on 08 6222 7909 or book a meeting directly via his booking page.
