My wife and I are in our late 60s, have investment assets of $1.8 million, and are contemplating transferring $1 million into a newly established family trust and use $500,000 to purchase a lifetime annuity. This would entitle us to receive a part-age pension. Do you think this would be a smart strategy and would a family trust with $1 million in investments be cost-effective?
Unfortunately, it’s not that simple. Centrelink looks closely at any transfers to family trusts to ensure people can’t do the strategy you are contemplating – in most cases they will still count the assets transferred to the family trust as your assets.
Family trusts cannot be used to reduce your assets and make you eligible for the age pension.Credit: Simon Letch
You are way above the limit to receive the age pension, but would probably be eligible for the Commonwealth Seniors Health card.
Despite having reasonable knowledge of superannuation, there is one question that I have not been able to find an answer to. If or when, my wife and I sell and downsize, I know that the amount that we can contribute to our super is limited by law, however are we further limited to our original transfer balance, in our case $1.6 million, or will we be able to top up to the transfer limit applying at that time?
No contributions to superannuation are allowed once you reach 75, or if your total superannuation balance exceeds $1.9 million. The down-sizer contribution is a one-off exception.
You can contribute up to $300,000 each from the sale of your residence provided certain conditions are met. The contribution can be made irrespective of your age or total superannuation balance.
Having used up your transfer balance cap of $1.6 million, no more transfers to pension mode are allowed – however your pension account can grow without limit provided you take the mandatory pension each year.
I have an offset account against my home loan. This offset account balance is over $115,000, while my home loan debt is $80,000. My bank is still debiting my personal account. Why would this be? I thought that with an offset account, you are only charged for the difference between the amount owing and the amount in your offset account.
When you take out a loan, you are required to make the required monthly payments – an offset account is just a useful device that lets you use surplus funds to reduce the interest payable and so reduce the loan faster. I see no point in having the offset account with the balance higher than the loan. All you are doing is wasting the earning you could be making on the excess funds.
There is confusion about how nursing home bond amounts are calculated. My understanding is that the family home is exempt, but all other assets are not and can be forcibly sold to garner a bond, and 85 per cent of pension income is taken by nursing homes for daily living costs? What is the rule around gifting money ahead of nursing home entry?
Rachel Lane says when it comes to the bond (now known as a Refundable Accommodation Deposit or RAD), the family home is included in the means test up to a capped value of $197,735 unless a protected person lives there.
A protected person includes your spouse or dependent child and in some cases can include a carer or close relative. It is up to you whether you pay the RAD, pay by a Daily Accommodation Payment (calculated at a government-set interest rate) or pay by a combination of the two. None of your assets can be forcibly sold to pay a RAD.
Besides your accommodation cost you will pay a basic daily fee, set at 85 per cent of the Age Pension, currently $61 per day. There can also be a means-tested care fee (based on your assets and income) up to $400 per day with an annual cap of $32,719 and a lifetime limit of $78,525.
Beyond that, you will pay for any extras like Foxtel, hairdressing or a glass of wine with your meal plus your own personal expenses like medications and clothing etc.
When it comes to gifting and the aged care means test, any gift exceeding $10,000 in a financial year or $30,000 in a five-year period will be counted as a deprived asset for five years from the date of the gift.
Noel Whittaker is the co-author of Downsizing Made Simple with fellow finance expert Rachel Lane, available here. Email: noel@noelwhittaker.com.au
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Can we get the pension if we transfer $1m to a family trust?
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12.03.2024
My wife and I are in our late 60s, have investment assets of $1.8 million, and are contemplating transferring $1 million into a newly established family trust and use $500,000 to purchase a lifetime annuity. This would entitle us to receive a part-age pension. Do you think this would be a smart strategy and would a family trust with $1 million in investments be cost-effective?
Unfortunately, it’s not that simple. Centrelink looks closely at any transfers to family trusts to ensure people can’t do the strategy you are contemplating – in most cases they will still count the assets transferred to the family trust as your assets.
Family trusts cannot be used to reduce your assets and make you eligible for the age pension.Credit: Simon Letch
You are way above the limit to receive the age pension, but would probably be eligible for the Commonwealth Seniors Health card.
Despite having reasonable knowledge of superannuation, there is one question that I have not been able to find an answer to. If or when, my wife and I sell and downsize, I know that the amount that we can contribute to our super is limited by law, however........
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