February 15, 2012

Vol 1 Ed 9

Online at http://www.financialcareservices.com.au/newsletters/vol-1-ed-9

Financial Care Services

Newsletter Volume 1 Edition 9
Sent 30 November 2011

 Centrelink and Gifting

Centrelink customers ask, ‘How much does Centrelink allow me to give away?’  The simple answer is that Centrelink places no restrictions on what its clients choose to do with their assets.  Age Pensioners can gift as much as they like whenever they like.

But maybe the underlying question was, ‘How much can I give away without affecting my Age Pension?  Then the answer is very different.  Centrelink has limits on the amounts of gifts that can be ignored for Asset and Income Testing purposes.

Gifts totalling not more than $10,000 in any financial year or $30,000 in any five year period will be treated like any regular living expenses.  The same limits apply to a single person and to any ‘couple at Centrelink’.

Mary is delighted that her only grandchild, Jane, is studying nursing.  As an encouragement to Jane, Mary pays the first $3,000 of each semesters HELP fee.  Mary and Jane keep the HELP receipts to show Centrelink that Mary’s gifts are less than $10,000 in any financial year and will not exceed $30,000 over five years.

Age Pensioners, Bob and Betty, recently received a large inheritance and have chosen to share $30,000 with their four sons.  Before making any gifts, Bob and Betty sought the advice of Financial Care Services to develop a gifting plan.  Christine advised them to keep within the Centrelink limits so Bob transferred $2,500 to each of their sons in June 2011 and another $2,500 each in July 2011.  The final $2,500 each will not be paid until July 2012.  After each batch of gifts Bob and Betty inform Centrelink of their gifts and their new bank balance.

If the total gifts over any period exceeds these limits then the ‘excess gifts’ will be remembered by Centrelink for the next five years.  Each time Centrelink do a means testing calculation during the five years after an excess gift, the amount of the ‘excess gift’ will be include as an additional financial asset.

Tom received a substantial retrenchment payout at age 62 in August 2008 and immediately made a one-off gift of $100,000 to assist his daughter purchase a home.  Tom then worked part time until he attained age 65 and retired.  He was surprised when Centrelink reduced his Age Pension on account of an ‘excess gift’ of $90,000.

In the Asset and Income section of the Application for an Age Pension, Tom declared that he had gifted $100,000 three years ago.  Centrelink deducted the $10,000 annual allowance and counted the other $90,000 as an ‘excess gift’.  The excess gift is treated as an additional financial asset whenever Centrelink calculate Tom’s deemed financial income during the five years after the gift.  Thus Tom’s ‘excess gift’ will not expire until August 2013.

Tom had sufficient income to cover his expenses and was not worried about the reduction in Age Pension on account of the excess gift.  Late in 2011, Tom had a stroke and did not recover enough to come home.  The excess gift was counted as part of his assets for the Asset Assessment on entry to Residential Aged Care.

Tom’s family sought the help of Financial Care Services regarding the financial aspects of his entry to permanent aged care.  Tom had gifted the $90,000 so he no longer had that money but Financial Care Services showed the family how his other assets would be sufficient to cover the costs of a reasonable Accommodation Bond.

In summary, Centrelink count gifts in excess of $10,000 per financial year and/or $30,000 over any rolling five year period.  Thus the amounts and timing of gifts does matter for anyone who might be needing a means tested pension or benefit and/or entry to residential aged care within the next five years.  A consultation with Financial Care Services can help clients structure gifts to minimise the impact of Centrelink rules.

Next edition we will consider the family beach house and how Centrelink treat its ownership, sale or gifting.

About Us

Clients of Financial Care Services receive impartial confidential financial advice from an actuary.  Financial Care Services is an independent professional financial advisory service which holds Australian Financial Services Licence number 299570.

Clients are charged flat fees for advice and assistance; no upfront commissions are accepted in respect of clients’ investments.  Home visits and out of hours appointments are available to assist client families.

For more information call Christine on 9808 0338 or visit www.financialcareservices.com.au

Financial Care Services specialises in advising seniors through life’s transitions.

Remember, referring your clients for impartial professional financial advice enhances your profile and reduces the potential for later complaints.

Christine Hopper
Fellow of Institute of Actuaries of Australia
Director and Authorised Representative
Financial Care Services
Telephone 03 9808 0338