Inheritance, entitlements and income support

Estate Planning is a vital part of a sound financial plan. It’s important to ensure your estate plans are properly considered.

You need to have piece of mind that your wealth will be effectively passed on to your intended beneficiaries. This article explores the negative impact on the Age Pension from a poorly considered Will. If you would like an initial discussion about your family estate plans, please contact your Highview expert.

An inheritance often leads to a reduction in entitlements and a need to revise portfolios to generate replacement income from investments. If the beneficiary is accessing aged care services, this may also increase the care fees payable.

??Centrelink and DVA payments
If a person receives means-tested payments from Centrelink/DVA any changes in personal or financial circumstances need to be advised within 14 days so that entitlements can be recalculated.

If a person becomes aware of a pending interest in a deceased estate they should flag this event with Centrelink/DVA. However, the inheritance will not be assessed until it becomes payable, with further notification required at the time.

Centrelink/DVA generally accepts that this process can take up to 12 months as disputes need to be settled and liabilities paid. However, if the estate is not distributed within 12 months from that date of death, Centrelink/DVA may investigate to determine whether it is a legitimate delay arising from extenuating circumstances or reasons beyond the beneficiary’s control.

If the delay is not considered legitimate, Centrelink/DVA may start to assess the pending entitlements. Assets inherited are assessed at net market value but no allowance is made for any capital gains tax liability that is inherited with the asset.

??Relinquishing entitlements?
Beneficiaries cannot choose to relinquish entitlements to avoid the impact on Centrelink/DVA benefits.

Gifting rules will apply if a beneficiary instructs the estate executor to cancel entitlements and redistribute their share to other beneficiaries. This applies even if the person has no ability to direct to whom the distributions are made.

At most, relinquishing an inheritance will reduce assessable assets by $10,000 as normal gifting and deprivation rules apply. The client could be made worse off as the deprived asset may lead to a reduction in Centrelink entitlements but without any increase in income or access to capital to compensate.

The gifting assessment applies regardless of whether the beneficiary was specifically nominated in the Will or the person died interstate.

It may be too late to relinquish estate entitlements after the death of the testator, but with preplanning, decisions can be made whether to exclude certain people from the Will or direct entitlements to other family members or charities.

 

EXAMPLE?

Harriett is a widow who receives about two thirds of the full age pension. She owns her own home and is living quite comfortably. Sadly, her 95 year old mother dies and leaves $1 million to Harriett in her will. ??

This inheritance would cause Harriett to lose the age pension completely, as well as the Pensioner Concession Card. She has modest cash reserves and has no need for the inheritance. Harriett would prefer it is passed directly to her children who are still struggling with mortgages and the cost of raising children.??

If Harriett relinquishes her entitlements to leave the executor (her eldest son) free to make the distributions to her children this would be considered a gift by Centrelink and would be assessed under deprivation rules.??

A better outcome may have arisen if Harriett’s mother had discussed the situation with her family and nominated her grandchildren as beneficiaries instead of Harriett.

 

??Introduction by Bruce Chisholm. Article by Louise Biti.