By Sophie Doyle
Many retirees may want to help younger family members by gifting part of their savings. But if things go wrong in the future, the joy may turn to grief.
Gifting may help the children and grandchildren, but it may have significant impacts for an older person’s own future – especially if an aged care need arises.
Means–testing impacts your eligibility for government concessions, such as the age pension and impacts how much you will be asked to pay in aged care fees. Many self–funded retirees are unaware that gifting can also affect their means–testing for aged care fees.
“Gifting” refers to the act of giving away assets, which can take various forms:
- Giving away cash without receiving anything in return or receiving an item of lower value.
- Transferring assets without receiving any compensation.
- Selling assets for less than their market value.
It’s important to note that gifting assets may not have the intended impact, as gifts are still assessable for five years if you gift more than the allowable thresholds. For example, if you, as a single person or as a couple, gift more than $10,000 in a financial year (or $30,000 over five years), the excess amount will be treated as a deprived asset for the following five years.
If your goal is to reduce assessable assets, it’s necessary to plan ahead by more than five years. However, predicting future circumstances can be challenging, and leaving yourself with insufficient resources may increase risks and limit your choices when it comes to care options.
Example
Betty has $700,000 in financial investments, in addition to her home. She decides to gift $300,000 to family. This leaves her with $400,000 in savings, but Centrelink will continue to assess her assets at $690,000 (only reduced by the allowable threshold of $10,000).
As a result, Betty has less assets to support herself. Her age pension only increases by $780 per year. If Betty needs to move into aged care within the next five years, the gift will also affect her means–test assessment. She will need to fund around $27,000 per year for ongoing care fees (basic fee plus means–tested care fee) plus other personal expenses and accommodation costs.
The key message here is to exercise caution before engaging in gifting, as safeguarding your financial future is equally important as assisting your family members in securing theirs. Gifting assets without considering the implications may leave you with inadequate resources to meet future needs or adapt to unforeseen changes. It is advisable to seek financial advice to thoroughly evaluate the implications and make an informed decision.
Sophie Doyle (AR#000470612) is an Aged Care Specialist at Morgans Financial Limited (Morgans AFSL 235410 / ABN49 010 669 726); with a passion for assisting people make informed financial decisions, as they navigate their way through retirement and aged care. Disclaimer: While every care has been taken, Morgans Financial Limited makes no representations as to the accuracy or completeness of the contents. The information is of a general nature only and has been prepared without consideration of your individual objectives, financial situation or needs. Before making any decisions, you should consider the appropriateness for your personal investment objectives, financial situation or individual needs. We recommend you see a financial adviser, registered tax agent or legal adviser before making any decisions based on this information. Current at 1 May 2023.