Q Much to her surprise, my mother, aged over 90, is about to inherit a large sum of money (between $350,000 and $400,000). She currently receives a full pension and lives in aged care. My questions are: will her pension be affected (she did not pay a bond and has no other assets except about $30,000 in the bank), and will her aged care fees rise?
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A As a non-homeowner your mother can have $354,500 in assets before her pension is reduced. Assuming she ends up with $400,000 in total, her pension will be reduced by $68 per fortnight under the asset test. If that money is just added to the money she has in the bank, it will be deemed to earn income. The deemed income on $400,000 is $12,271, which would cause a reduction to her pension of $155 per fortnight. There is no simple solution. It is probably worth considering some gifting (up to $10,000) and pre-paying a funeral to reduce the level of assessable assets and investing within an insurance bond via a trust or an annuity to limit assessable income. Her cost of care will also be affected. If she moved into care after July 2014, her assets and income will be assessed. If she entered prior to this, only income will be used to calculate her cost of care.
Q I am an elderly pensioner and have been living in my current home, which I own, for a number of decades. My ongoing health is of concern to my daughter and son and it has been suggested that two units be built at the rear of my home, which they will pay for and live in. I have no issue with this, but my concern is whether there will be any implications for my current pension.
A Living arrangements such as this are often assessed by Centrelink under the granny flat rules. While most people think of a granny flat as a self-contained dwelling in someone else’s backyard, it is not uncommon for people to have a granny flat in the family home. This happens when a parent transfers their ownership in the home for a right to live there normally with children providing support through meals, cleaning and shopping/appointments. The market value of the granny flat arrangement is taken to be the amount someone pays unless they transfer more than the value of the house or more than the cost of construction. Where the amount transferred is above these amounts it is subject to a reasonableness test, which is a multiple of the couple pension depending on age. For example, someone aged 74 next birthday would have a reasonableness test amount of $484,000. Any amount over this test would be considered a gift and impact pension entitlement. The really tricky part with these arrangements comes from the fact that the house is likely the biggest asset of your estate and there may be more beneficiaries than the ones moving in. But if you retain ownership (even in part) the granny flat rules don’t apply – and in some cases the amount you have transferred can be seen as a gift. Down the track if you need aged care the amount can also be included in the means test for determining what you can afford to pay. It’s a complex area: specialist advice is mandatory.
