Q: My husband is 69 and retired a year ago, while I am 63 and still working. My income after tax is about $40,000 a year. I have a superannuation balance of about $16,000 and my husband has about $425,000 after tax. Our other assets total about $20,000. In May 2017, on the advice of our accountant, we decided to transfer a house we owned to our son and his wife through a trust arrangement. We now live with them, but my husband’s health has declined. I’ve been told by Centrelink that he isn’t eligible for a pension because of means testing. In February next year, five years will have passed since we gave the property to our son and his wife. Am I correct in assuming that, after five years, such gifts are disregarded? Will my husband qualify for a part-pension in February?
This is a complex set of arrangements, which needs more information to determine exactly what might happen.
Your husband’s age makes him eligible for the Age Pension but he probably didn’t qualify for it because of the effects of the assets test. If his health is such that he requires constant ongoing care, you or another family member may be eligible for Centrelink’s Carer Payment, however, which is paid at a rate identical to the pension each fortnight.
Assuming the trust arrangement was to share the financial benefits of your property, and as you have no other dwelling, you will probably be regarded as non-home-owners, which means your upper asset test limit is currently $1,100,500. Go over this limit and you don’t qualify for any pension.
Unfortunately, the house you transferred to the trust in May 2017 will be assessed under the asset test now and, more importantly, into the foreseeable future. While the trust arrangement may have helped the tax position of you and your children at the time, it is important to be aware that the Centrelink treatment of income and assets can be completely different to the legal and tax office treatment.
That particularly applies to trust arrangements. Centrelink often view transfers into trusts and other structures as arrangements to avoid the effects of means testing, so it has strict rules in place to prevent this.
On that basis, Centrelink looks at the trustees of the trust to ascertain if there are any relationship links. If a link does exist, the Centrelink customer could exert control or influence over the trustees of the trust on their dealings with the assets transferred into the trust. You could, for example, ask your kids to pay you money from the trust, or you could benefit from assets in the trust. Perhaps they might pay you some of the rent, a portion of the sale proceeds if you decide to sell the property, or provide rent-free accommodation in that house. To that end, the list of trustees Centrelink has identified that could be influenced by Centrelink benefit recipients includes all of your relatives and all professionals associated with you – including accountants, lawyers and financial advisers.
Your misunderstanding of the gifting rules is common. The gifting rules effectively require you transfer all rights associated with an asset to another party. Assets can take many forms, including, cash, shares or property. You can give as much away as you like, whenever you choose.
The Centrelink rules say that no matter the value, however, they will only reduce your assets by up to $10,000 per year with a maximum of $30,000 over a rolling five-year period. In essence, you wouldn’t lose any pension, you just wouldn’t get any more than the lift in fortnightly pension associated with the $10,000 gifting limit.
The “five year rule” essentially says that no matter the value of the gift, five years to the day you make the gift, the value drops out of Centrelink’s systems and you might see a sudden big jump in your pension. In your case, if your total assets including the current value of the house fall under the upper limit of $1,100,500, your husband would qualify for a part-pension. Total assets therefore would include the value of the house, the $20,000 in other assets and the $425,000 he currently has in super. That therefore implies that the trust assets (the house) must be valued at no more than $655,500.
You will notice that I did not include your super balance of $16,000. That’s because super held in accumulation phase for people under Age Pension age is ignored by Centrelink, which highlights one “trick” you might be able to make use of.
If your husband decides to cash-out some of his super, you then contribute that amount into your own super fund. Up to $330,000 could be contributed this way if you have not previously made non-concessional contributions to super in the past three years.
Once you reach Age Pension age of 67, all of the money in your super will be assessed and added to your other financial assets for means testing purposes. The key is to ascertain the current value of the property in the trust to see if this strategy is worth pursuing.
One final point. If your husband now requires constant care, you should also explore Centrelink’s Carer Allowance. This is a non asset tested fortnightly benefit of $131.90 per fortnight, and your income is well under the $250,000 income test threshold to qualify.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.