How does an inheritance impact my Age Pension?
As financial planners, we assist clients through many stages of life. Unfortunately, one of these stages is helping navigate the process of receiving an inheritance, most notably, how to invest the proceeds and determining how the inheritance may impact their existing Age Pension entitlement.
Put simply, the impact an inheritance may have on your Age Pension payment is very much a case-by-case scenario. It depends on one’s existing wealth, the amount inherited, and the circumstances of receiving the inheritance. For example, did you receive the inheritance from your parents or was it a spouse who passed away.
To provide further context, let’s consider a practical example. Mary and John own their home and have $545,000 in Centrelink assessable assets and receive a part Age Pension of $750pf each limited by the asset test. Assuming John passes away and Mary inherits everything, she would move to the single means test, which have lower income and asset thresholds. Under the single homeowner asset test Mary would be eligible for $451pf, a drop of nearly $300pf to what she had previously received. This is further compounded by the loss of John’s Age Pension given he passed away. As a household the drop would be nearly $1,050pf in total.
A common reaction when someone learns that their Centrelink entitlement will be significantly reduced or cancelled is to consider ways to delay receiving their inheritance or to reduce their assets.
Two common yet inappropriate strategies clients consider are:
- Gifting or transferring their entitlement to another person. If you are a listed beneficiary in a Will, you cannot transfer your entitlement to another person without impacting your Centrelink entitlement. Whilst from a legal point of view is it possible to have your inheritance redirected to another person before any money hits your bank, in Centrelink’s eyes you are depriving yourself to maintain an Age Pension and the gifting rules come into play. Please refer to our article on gifting for more information. It highlights the importance of involving your loved ones when developing an estate plan. Your children may not need or want a significant inheritance, in part because of the impact on their Age Pension. Therefore, listing grandchildren who may benefit from an inheritance, possibly when they need it most, could be more appropriate for all parties involved.
- Retaining money in the deceased estate for a prolonged period. Once the estate proceeds are able to be paid, Centrelink will assess your entitlement. Sure, if there is a reasonable explanation for the delay in having the estate paid, Centrelink may give leeway, though what most people are not aware of is that Centrelink use their discretion to determine what is “reasonable”. Centrelink can assess funds held in an estate and as such keeping funds there for a prolonged period may not be a viable option.
As an alternative to the above, you might like to use some of our other strategies to help protect your Age Pension benefit. How to hide money from Centrelink – Legally
It is always best to consider your options and the implications of an inheritance with the help of specialists. Careful planning by a financial planner and lawyer can help minimise the chances of Centrelink issuing the dreaded request for repayment of overpaid entitlements.
Photo by Joel Moysuh on Unsplash