Ask Paul: How much can you gift without losing the pension?
My 82-year-old mother is selling her home and moving in with my sister. Mum would like to gift money to each of her six adult children.
What are the rules and implications regarding her aged pension? How much can she gift? And how much should she invest and where? Thank you. - Tanya
Good on your mum.
I am not sure whether to laugh or cry when I see people grimly hanging onto money in excess of their reasonable needs. My wife and I often have a chuckle about this.
Statistically, one of us is likely to live to 90 or older (probably my wife!), and I while am sure that our three adult children would appreciate an inheritance when they are 70, it seems ridiculous to us. The world has changed. We are living longer and we need to change our views towards the transition of money to our kids.
Rule 1, though, is very important. First, ensure you are financially secure and that you have a financial plan for the path to death. This includes possible aged care and high-care accommodation costs. If you have this plan covered, then help the kids when they most need financial help. That is rarely when they are 70!
Tanya, with your mum any gifts are dealt with under the harsh-sounding "deprivation provisions".
There is much commonsense here. Giving a pile of unwanted money to the kids, then getting a full pension, is not a bad-sounding strategy (as long as the kids don't blow the money).
There is a limit of $10,000 a year, with a $30,000 limit over five years. Anything she gives away above these limits is calculated as being her asset and the income test applies.
The key here is how much money your mother receives and how much she wishes to gift. If it were $10,000 in year one, no problem, but $1666 for each of the six of you is not exactly a fortune.
If she has sold her house for a large sum, I'd seek professional financial advice. Houses are so expensive these days, she may be better off investing sensibly, gifting surplus funds to the six of you and not worrying about the pension.
I do appreciate how much people can value the pension. Technically, your mum could go to the casino and lose the lot and keep her pension. I do see people doing really stupid things to keep the pension, but the amount she has received will dictate the path she takes.
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