Beware of the gift!
“Often gifting is done with the very best of intensions by parents in their mid-sixties, without consideration of their aged care needs when they reach their eighties”.
“Careful forward planning is required for any level of gifting above the government threshold” warns Craig Phillips of Phillips Wealth Partners, Canberra.
According to Craig, a senior financial planner and aged care professional™ for some senior Australians “gifting may seem like a good idea at the time to help out family members, but the implications for the parents as they are entering permanent residential aged care as they are often unable to afford the aged care facility of choice because they were unaware of the high cost involved.”
This article explains what gifting is, the thresholds and why careful planning is needed when considering gifting in your senior years.
What is gifting?
Gifting is a term used when a client or their spouse:
- gives away assets, including transferring assets for less than market value, and
- does not receive adequate consideration for the gift or transfer in the form of money, goods or services.
Craig shares some common examples of gifting. These could include:
- Transferring your shares or units in a trust or company and don’t get full market value for them.
- Owning a rental property worth $480,000 and selling it to your children for only $300,000.
- Buying a car for your daughter/son as a present.
- Forgiving a loan.
There is a limit to what can be gifted
Craig highlights “with respect to income support and aged care subsidised services, clients are expected to use their own resources to look after themselves and gifting will reduce a clients available resources”.
Therefore, the government limits how much can be gifted. Amounts gifted above the allowable limits are considered “deprived assets” and assessed as a financial asset. This excess is included in the assets test and income test (under deeming rules) for five years from the date of the gift.
The allowable gifting limits are:
- $10,000 in any financial year (per single person or couple combined), and
- $30,000 over a five year rolling period
Similarly, gifts made in the five years prior to applying for Centrelink / DVA payment are also included.
What isn’t Gifting
As important as it is to understand what gifting is and the associated thresholds, it is equally important to be clear about what gifting isn’t. For example, gifting isn’t:
- selling or reducing your assets to meet normal costs such as a washing machine a holiday or home renovations,
- paying for services, such as house painting,
- owning a house valued at $480,000 but selling it for $450,000 on the open market – assuming this was the best offer to date and you didn’t want to wait for a higher offer,
- having a debt that you can’t repay, so you transfer a car worth about the same to wipe out the debt or
- putting money into a family trust that you or your partner control.
Tips to be aware of when it comes to gifting
Craig states “Some families transfer assets such as cash or shares/property over time to children and other family members with the intention of gaining some or full access to income support payments (centrelink)”.
He says “this can of course help improve their cashflow and income certainty in retirement with the age pension and concessions to health costs. This effectually helps those who receive the gift immediately like children with maybe a large mortgage and are suffering difficulties with maybe a job loss but the real crunch can come if they need to pay for permanent residential care for one parent with one remaining in the family home”.
An example:
“A scenario we often see is the family home is worth around $700,000 and both parents are needing to move to permeant aged care and they have gifted $300,000 to their children over the 7 years. The deprived assets rules have lapsed but now they need the cash as they have exhausted their savings.
The aged facility they would like to move into is asking for a Refundable Accommodation Deposit (RAD) of $500,000 per bed, so they effectively need $1,000,000. They will likely sell the home but are still $300,000 short.
Do the children pay the difference in either RAD or the equivalent daily payment (DAP)?
Craig is a Senior Financial Advisor at Phillips Wealth Partners with over 20 years’ experience in the financial services industry and aged care financial planning. He is motivated to make a real difference to families and business by finding out what’s important to them, putting robust and workable plans in place and then to provide outstanding ongoing service to help them achieve. More at www.phillipswp.com.au
This information was prepared by Phillips Wealth Partners ACN 624858420 a corporate Authorised Representative of Ausure Pty Ltd AFSL 238433. It is for the use of advisers only and is not to be issued, reproduced in whole or in part, or made available to members of the public. The information and examples are of a general nature only and should not be regarded as specific aged care, taxation, superannuation, retirement or social security advice. It is based on the continuation of present aged care, taxation, social security, superannuation laws, rulings and their interpretation as at the date of this presentation.
