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.
What if I win money on horseracing.
Will that be considered as income ?
This seems very unfair I have helped my own children before retirement and now have eight grand children I would dearly love to assist with their homes. Surely if everyone received a taxed pension this would eliminate many expenses, After enduring the experience and expense of aged care for my late husband I am very concerned about how I will afford same if needed, hope it never happens to me. The Government of the day should not have any say in how people who have worked hard and paid taxes for many years spend their retirement or their finance.
I am on Centrelink Disability Support Pension with ‘Indefinite Portability’ (which allows me to live overseas and receive full benefit. I currently reside in Thailand.
My father passed away early last year.. and finally next Monday the executor of the estate will deposit $401,000 into my Australian bank account.
I am yet to have any plan for the money.
Q. When and how (or do I have to?) tell Centrelink of this. And what affect will it have to my benefit.
thanks
Hi Daniel. You need to tell Centrelink of changes to your circumstances within 14 days of the change occurring. The additional money in your bank account will affect your entitlements as it will be treated as an asset
Lee my mum passed away and i will recive about $40000 do i need to tell centerlink
Hi Lee, thank you for reaching out with your enquiry. Centrelink expect you to notify them of any change to your financial investments of +/- $2,000 within 14 days of the change occurring. Once you receive the payment into your account you should request an interim/out of cycle statement from your bank, upload the statement to Centrelink and then call them to ensure the change is made and your pension is recalculated accordingly. You may wish to update Centrelink on all of your other asset values in case there have been other changes that you have not yet notified Centrelink about.
That’s fair enough. Extra assets mean you don’t need as much pension, at least that is what we are meant to believe with assets just over the max assets test.
Excellent useable information thank you
Can someone tell me how valuable inherited artwork is treated by Centrelink please. Does it have to be declared as an asset and will that affect my age pension? What if I sell it? I cant find any reference to this sort of inheritance on the Centrelink website or anywhere else. Thank you.
Hi Leonie. Artwork will be counted amongst your personal possessions for the assets test. The same will be the case with the proceeds should you choose to sell it.
I recieved inheritance of 67.000 in 2019. Im on age pension.
I havent reported it..
Iv spent aprox 40.000..
Would this situation be a problem if i report it now.
I have no assets or other savings.
Do you sugest i report as soon as possable
Thankyou..Jphn
Hi, if you are on the age pension you are required to report changes in your circumstances to Centrelink such as an inheritance. Based upon what you have told us you would be well below the assets threshold so your inheritance wouldn’t have affected your entitlements. Centrelink may however wish to talk to you about why it wasn’t reported at the time and you take the opportunity to update all your assets including things such as a car and personal assets
I am on a disability pension and my mother passed away a month ago. I currently rent, and will not be able to afford to buy a home with my inheritance (which will likely be between $150,000 and $200,000). So I don’t have a home which I can pay off and I am worried that I might lose my disability pension. Am I likely to lose my pension if I don’t spend this money immediately? I do need a new car, so would like to put some of the money towards that, but I don’t want to waste my inheritance either. Unsure what I should do and feeling quite stressed about this.
Hi Sandra, if you look up the assets test for pensions you’ll see the limits. Buying a car doesn’t mean you’ve spent the money as the car is also considered an asset . If you don’t have any other significant assets this inheritance won’t affect your Centrelink payment as the cut off for full pension is $480,000 approx for non home owners. So unless your assets including the inheritance add up to $480k your payment won’t be affected.