Ask Paul: Can I gift my child $400k so I don't lose my disability pension?

Dear Paul,

I'm 39 with two children, aged 19 and 13 and I'm on a disability support pension.

My husband works one day a week and is my full-time carer - he receives carer's payments from Centrelink.

I'm saddened to say that my dad passed away in May and my mother passed away in early June. I lost both of them in just 17 days. My hurt is beyond words.  

After the sale of my parents' house, I would inherit about $400,000.

I simply cannot refuse to take this money, but if I accept it Centrelink will stop my DSP and my husband's carer payments. My monthly prescription medication for my disability is $153 plus regular doctor visits. 

My 19-year-old daughter is not talking to us and can't be trusted since she left us to move to the US. She is married and has no plans to come back to Australia.

Can I give my son all the funds without affecting our Centrelink payments? Can I put my inheritance into my husband's super since I don't work?

I still have my super with REST. I used to work at a department store but due to my disability, I quit last year. - Paula

Paula, you have been having a tough time. My commiserations about losing both your parents, in particular in such a short period of time.

We have three children, now in their 20s and 30s, so I can also imagine how distressing a rift between parents and a child must be. As your daughter matures, my hopes are that you are able to reconnect in a positive way.

Then on top of that you have had to retire from work due to your disability.

In terms of your life, though, the inheritance of some $400,000 is a life-changing amount of money. I do understand the impact it will have on your disability payments and also your husband's carer payments, but let's look at the positives.

I will need you to talk to your super fund, as I do not have the detailed knowledge of your situation to give any specific advice.

I would not be surprised if between you and your husband you were able to add this amount to your two funds, but it is essential to get the details correct.

If you were to do that and the fund continued to earn around 6% to 8% a year, as super funds have done for decades, then the $400,000 would earn you some $24,000 to $32,000 a year on average. That really is a significant amount.

But we need to consider if superannuation is your best option.

First, no, you can't give it to your son. Pension payments have "deprivation" provisions if you give it away like this.

Regardless of that, giving a huge amount of money to a 13-year-old makes little sense to me. Imagine if you had done that with your daughter? Also, you say you can't refuse the money, but why would you? Such a large amount, sensibly invested, should provide returns well beyond government payments.

In terms of getting rid of it, you could blow it on lifestyle spending in no time all. Sadly, I have seen this done to preserve pensions, but this seems to me to be madness.

About the "least worst" way of getting rid of money without impacting government benefits is to upgrade your family home, put in a new kitchen and so on. This is not "deprivation" of your assets; it is a personal choice. Your home will be an exempt asset.

But even investing in your own home, or a better home, just to protect a pension seems really crazy to me if you do not need a new home and your current place is in good condition. If you had a mortgage, paying that off could be a good money decision and reduce your pension assessable assets.

These personal and investment decisions I must leave to you. But my general advice is very clear.

Work out your best plan for this money, including your home and possible necessary renovations. Then chat to your super fund and check your options there. Seek independent advice if you think that would help.

My best wishes to you and your family.

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