At Centrelink gifting is transferring assets to another person or entity for less than the market value.
Centrelink expects its Age Pensioner and DSP customers to report any substantial gifts of money or assets.
What is a gift at Centrelink?
The simple example of Centrelink gifting is the fifty dollar note in your Christmas card from granny.
Forgiving a loan from the Pensioner to a family member is also gifting at Centrelink. For example, if granny loaned her daughter $25,000 to buy a new car, granny could forgive $10,000 of the loan and have that $10,000 treated as a gift at Centrelink or DVA.
Transferring ownership of an asset for less than its market value is gifting at Centrelink.
Grandpa might not be ‘gifting’ if he had a newish car registered in his name and he allowed his daughter to drive it on condition that she took Grandpa to his medical appointments and did his shopping.
But if Grandpa transferred ownership of the car to his daughter then Centrelink would count the transfer as a gift. The amount of Grandpa’s gift could be assessed under Centrelink gifting rules as the market value of the car on the day that it was transferred.
Transferring assets to a family trust for the benefit of the grandchildren could be gifting at Centrelink. Similarly paying the school fees for your grandchildren could be gifting at Centrelink or DVA.
Transferring assets to a family trust that could benefit yourselves might be Centrelink gifting or Centrelink might count the trust as part of your assets.
Transferring all or part ownership of the holiday house to your children would be a substantial gift.
Hint: Always keep detailed records of any gifts of more than $1,000.
Consider gifting the beach house at least five years before you reach Age Pension Age and long before you might become frail.
Centrelink gifting and ongoing treatment of gifts
Centrelink understands that seniors are still generous people. The Centrelink gifting rules provide for gifts not exceeding $10,000 in any financial year or $30,000 over any rolling five year period to be treated as normal expenditure, like electricity bills.
The amount of a gift above these limits is treated as an ‘excess gift’ at Centrelink. For the five years after the DSP or Age Pensioner made an excess gift, Centrelink treat the excess gift amount as an additional financial asset.
For example, Sue had been an Age Pensioner for many years and given only small amounts to her family as birthday gifts. Sue inherited $200,000 and chose to gift $25,000 to her son. Centrelink would count $15,000 as an ‘excess gift’, that is, the full amount of the gift less $10,000 ‘gift allowance’.
For Age Pension means testing purposes, Centrelink treat Sue as having total ‘financial assets’ of $190,000 comprising her bank account balance of $175,000 plus the$15,000 of excess gift.
Excess gifts at Centrelink expire after five years.
Aged care entry after Centrelink Gifting
Any excess gifts during the five years prior to entry to residential aged care count as Assets for the purposes of determining eligibility for Supported Resident status. The excess gift is included in the resident’s Assets for calculating her maximum allowable Accommodation Bond.
A substantial gift during the five years before entering residential aged care could result in the new resident having insufficient resources to finance her aged care.
For example Sue would have the $15,000 of excess gift counted in her Asset Assessment if she needed residential aged care within five years of making the $25,000 gift to her son.
Substantial Gifts in the five years prior to entering residential aged care could result in unforeseen challenges with financing aged care.
For example, Mary a self-funded retiree gifted $100,000 to her daughter as a deposit for a home. Mary has sufficient other assets to cover her Accommodation Bond for residential aged care. Later Mary is surprised to discover that Centrelink are counting an ‘excess gift’ of $90,000 in the calculation of Mary’s Income Tested Fee for aged care.
Exiting a granny flat arrangement within five years could be gifting at Centrelink and DVA.
Centrelink gifting rules allow for an Age Pensioner to pay a substantial amount, the ingoing contribution, towards the cost of providing permanent accommodation in someone else’s home.
The Centrelink gifting and granny flat requirement is that the Age Pensioner acquires a lifetime granny flat interest in the new home. Thus, the Age Pensioner is entitled to live in the granny flat (or another equivalent place) for the remainder of the Age Pensioner’s life.
If the granny flat arrangement ceases for any reason, the Pensioner could be considered to have gifted the ingoing contribution to the host. A granny flat arrangement could cease because the host’s personal situation changes and they move on. If the granny flat host starts a new relationship or an existing relationship breaks down then the granny flat agreement might be terminated.
In contrast, the granny flat agreement might not terminate if the host’s employment is transferred to another location and the Age Pensioner is provided with accommodation in the new place.
Careful documentation of a granny flat agreement could take account of the potential for the Age Pensioner to become physically frail and/or demented.
For example, Bob sold the family home and moved to a ‘granny flat’ at the home of his son, John. Bob contributed $130,000 to the renovation of John’s home to include a self-contained flat for Bob and a garage /workshop for Bob.
Three years later Bob had a severe stroke and cannot walk unaided; Bob now needs full time nursing care in a home without steps.
The Centrelink Asset Assessment for entry to residential aged care treats Bob’s contribution to his granny flat arrangement as a ‘gift’ because he had not lived in his granny flat for five years. Thus, Bob has an excess gift of $120,000 to be counted in his Asset Assessment. Therefore, Bob has more than the $113,785 of assessed assets allowed for a Supported Resident. Bob would be required to pay the maximum rate of Accommodation Charge on entry to a standard High Care aged care place in December 2013.
If you would like further confidential, independent and professional advice about Centrelink, aged care entry or financial issues please contact Christine Hopper (03) 9808 0338.
Disclaimer: The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before investing any money or moving in to any retirement village, lifestyle community or aged care facility. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations. © 2013 Financial Care Services Pty Ltd. All rights reserved.
To make an appointment for professional advice, call Financial Care Services (03) 9808 0338