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Many of our customers have asked us this question. As life expectancy increases it is no longer unusual for people to receive an inheritance much later in life. If you do receive a lump sum inheritance, or any lump sum, you need to be aware of a few important factors.

Tell Centrelink

This is really important. You must tell Centrelink with 14 days of receiving the lump sum.  If you don’t, you could be overpaid, and you will need to repay the money to Centrelink. This could be particularly difficult if you take a long time to tell them and have already spent the money.  Our Keeping Your Pension service can help you keep Centrelink up to date if you need assistance.  Email us at hello@retirementessentials.com.au if you would like to know more about this service.

How will your entitlements be affected?

As inheritances are typically hard to predict, they are exempt from the Centrelink income test. For example, if you received an inheritance of $200,000 Centrelink would not consider this to be $200,000 of income.

That doesn’t mean you won’t be affected though.  Depending on what you do with the inheritance it could have a major impact on you. So what will and won’t affect you?

Pay off the mortgage or renovate

If you own your home, your home is considered to be an exempt asset and doesn’t count towards the assets test. If you use the inherited money to pay off your mortgage or renovate your home then it won’t impact your entitlements.

Save or invest the money

If you are of Age Pension age and you:

  • Put the money in the bank or
  • Invest it, then

Centrelink will apply the deeming rules to that money.  In this particular case, Centrelink would deem that the $200,000 is earning $3,440 for a single person which would all count towards the income test.  Those on a part pension will definitely find their pension payments will be reduced while those on a full Age Pension could also be impacted and see their entitlements reduced.

In addition, the money will now be classified as an asset.  The extra $200,000 in assets is highly likely to affect your entitlements depending where you already sit against the assets test. You can see the latest thresholds for the assets and income test at the bottom of this email.

Use some for a holiday

If you use some of the inherited money to go on that once in a lifetime holiday then the money you have spent won’t impact your entitlements.

Gift a small portion of it

You can give away some money as long as you do not exceed the Centrelink gifting rules. There is a limit to how much you can give away in one year. $10,000 can be gifted in 1 financial year (regardless of whether you are a couple or single) or $30,000 over 5 financial years – this can’t include more than $10,000 in a single financial year.

You can check for yourself

If you have received an inheritance, or think you might in the future, you can use our eligibility calculator to see how this might affect your entitlements. We also love to get your comments so let us know your opinion by commenting below.