Australian society is witnessing the greatest intergenerational transfer of wealth ever seen. According to McCrindle Research, an estimated $3 trillion will be bequeathed to adult children over the next two decades. We don’t all have parents like the driven, mega-rich Logan Roy from the Succession TV series who is leaving squillions to his kids. But many older Australians are now inheriting sizeable sums from their Depression era parents.
This week we spoke with Maria about her expected inheritance of $270,000. The consultation was triggered by her question:
‘My 92 year old mother is in age care and I’ve been told that she is not expected to last long. She has no home, but some savings, so I expect to receive an inheritance of about $270,000 in the next few months.
I hope I don’t seem callous, but as I am 69 and receive a full Age Pension, I’m really scared of this inheritance threatening my current income. Can you tell me:
- What do I need to do?
- When I receive it, where do I put it (cash account, super, etc?)
- What else do I need to know?
With Maria’s permission, we are sharing this question and our answers as this dilemma comes up often for baby boomer beneficiaries.
The following suggestions are general in nature – not financial advice. But they helped Maria and will hopefully help others to understand rules around inheritances for retirees. Put simply, inheritance is no different to any other financial asset being assessed, it’s counted as an asset and deemed for the income test. There are, however, some opportunities for it to be exempt.
Centrelink needs to know.
Once you receive the inheritance, you must declare it to Centrelink within 14 days.
From this point onwards, Centrelink will treat it as an assessable asset. If it is immediately spent (e.g. to pay off debt) then there are no implications for your Age Pension. But if you invest it in super or a bank account etc, it will be assessable and also have income deemed.
There are lots of things to consider and no simple answers here as this depends very much on other aspects of Maria’s life, including whether she is a homeowner, if she is carrying debt, if she is partnered and her current assets and income. The following points are thought starters, and Maria will do well to seek further advice if she is struggling to weigh up the pros and cons of these various options.
Seven ways to use an inheritance
Invest in super
Maria could put part, or all of it into super. She could also use ‘Bring Forward’ provisions to do that if she chooses to contribute more than $110,000. Any money contributed to super will be an assessable asset.
Invest in cash or shares
Maria can put the money into a bank account or similar investment. Again it will be an assessable asset. Dividends on shares are subject to Dividend Imputation so this aspect would need further investigation.
Pay off debt
Depending upon how much she chooses to use to pay down debt, only the remaining portion will be assessable and there will be extra income available when repayments of interest cease.
Renovate the home
If Maria is a homeowner and chooses to renovate, then only the remaining balance is assessable.
Splurge!
Maybe she will go on a big-ticket holiday, spend up big. or treat the family to some fun adventures (beware the gifting rules). If so, only the remaining balance is assessable. But before spending up big, it’s useful to run a safe spending forecast to see if the money being spent might have been better utilised to fund a more comfortable retirement.
Buy a new car.
This is an interesting one, as the new car will be assessable as an asset (and so could alter Maria’s eligibility depending upon her other assets). But cars, caravans and motor bikes are not deemed, so this will make no difference to Maria’s Centrelink income status.
Contribute to a younger spouse’s super
We don’t know her relationship status, but if Maria has a younger spouse who is under Age Pension age, the full amount can be contributed to their accumulation account. This means it is not assessable by Centrelink.
These rules are fairly easy to follow, but it’s the pros and cons that can be difficult to assess. As we mentioned, Maria’s options can’t be fully compared without further information including whether she is single, a home owner and/or carrying debt. Also, if one half of a couple, her partner’s age and super (if any).
Do you have similar questions?
If you would like to learn more about the younger spouse strategy or maximising entitlements to structure your assets to minimise any inheritance impacts on Age Pension benefits Retirement Essentials offers tailored affordable consultations to support your decision-making.
Inheritances may be financially helpful, but their very nature means they start with a loss. Have you any insights that may help others grappling with financial decision making at a time of grief?
So, Where to put your extra money to still receive full age pension?
I am on part aged pension as I work 2 days a week.What about selling shares? I am thinking of selling my few shares to buy a car. When do I have to advise Centrelink if I put the entire amount into a new car?
Hi Paula, thanks for sharing your query! If you are going to sell the shares and buy the car at effectively the same time, then just wait until you have to car so you only have to update Centrelink once on all of the changes. If there will be a month or more in between the two then it would be better to update Centrelink on the sale of shares and then again on the purchase of the new car.
Hi, we have just sold land I will be receiving approx $220K I’m on a part pension and my wife hits age pension in October she only works 2 days a week at the moment. I plan to give this money as an inheritance to my children. Would it be better if the funds at settlement go to them directly or to my wife that isn’t on a pension at the moment. I don’t want this to affect my part pension I receive.
Hi Paul, an inheritance would imply they only get the money as part of your will/estate when you pass away however based on the rest of your comment it sounds as though this is not the case and you plan to give them money now. In which case this will count as a gift and you can read more on how gifting works HERE.
Hi
I have inherited $250,000 from overseas and to avoid losing my age pension can I leave it there and gift it to my brother who lives overseas.
Hi Tim. Centrelink will treat the inheritance as an asset so it could affect your Age Pension entitlements. Even if you give it to your brother the amount above the gifting thresholds will be treated as an asset for 5 years.
I only receive a very small pension . With my inheritance I will no longer receive any pension. Do I need to do anything apart from notifying Centrelink?
with my inheritance I wil no longer be eligible for a part pension.
Hi Valerie, thanks for reaching out. Yes, for the purposes of your age pension entitlement you just need to let them know of your change of circumstances. You may then want to make a separate application for the Commonwealth Seniors Health Care card as this will not automatically be given to you after you lose your pension entitlements. Outside of age pension considerations, the most important thing to understand in your situation is where is your income going to come from moving forward, will you have enough to sustain a comfortable level of spending, and how long might it be before you may be eligible again. We can provide guidance on all these questions in our strategy consultation, which you can book by clicking here. Best wishes, Nicole.
my husband will be recieving, a fair bit of inheritance, in a couple years time, he will be retired by then, i have already retired, i recieve a very small bit of age pension, because husband still works, are there any way to put our inheritance, somewhere, without it effecting our pension, in a couple years, we will seek our financial adviser, when we recieve it, we own our home, new vehicles, we under the assests test, thanks.
I am about to receive $17500 fr0m my late husbands super will it affect my aged super which has already dropped due to my lifetime super p e nsion of $286 a fortnight pension has dropped around $100 .
Hi Jenny it is possible the lump sum will impact your payments so you should declare it to Centrelink within 14 days of receiving the payment.
I am in a similar situation with approximately the same amount due to come to me when my beautiful father leaves us, I rent and don’t own my own home. I have no assets and minimal super. I am retired recently, so would like to know what I would need to do if I inherit 300,000
Hi Sue, for further assistance on how to maximise your Age Pension payments it would be best to book a consultations with our specialists HERE.
Hi Sue
I don’t own a home either and althought I am only 63yo I have checked the amount old age pensioners can have in the bank without losing any of their pension. I am not 100% sure of the amount but it is something like $570,000. Just google old age pensions under Australian Government and it will let you know the amount you are allowed in the bank. Oh I am also single so that makes a difference also.
Is the ATO informed if i inherit an inheritance?
What about donating all or part to a good cause?
Hi Mx Griffindor (I’m Ravenclaw btw), thank you for your query on how donations are assessed. Centrelink assess donations to charity as gifts so it is important to bear this in mind before donating.
Thanks. What effect on full age pension will receipt of $300000 have please?
Peter Gore. 0417759804
Hi Peter, please feel free to use our calculator HERE.
Does the need to notify Centrelink about an inheritance come after probate and when inheritance is released or some other point in time?
Hi Karen, great question! Centrelink expect to be notified of your increased asset value within 14 days of when the funds come into your possession.
Hi my mother is in an aged care home, she still has the family home as my sister has been able to stay in the home due to her being on a disability pension. My mother recently inherited 550000. She wishes to pass this on to her 4 children but I believe this will be asset tested and will affect her daily fee at the aged care home, close to an extra $90 per day. Can you please advise the least costly way of achieving this.
Hi Sue, Aged Care is a little outside of our wheelhouse at the moment so we wouldn’t be able to advise you on the best solution.
I will eventually inherent a large some of money which i intend to give to my 4 children , do i wait till i receive the inheritance from my Fathers Estate or he can change his Will to give my Children the money before ?
HI Ian, thanks for your question! I do not know what would be involved in changing your father’s will however if your plan is to give the money on then it would be better to have it willed directly to them from the estate instead. If the money is to go to you and then you decide to pass it on, this will count as a gift from you to them.
Hi my father passed away and my mother has been left with his part of an assets. She owns her home, and is on full pension. Does she have to tell centrelink? Wouldn’t they already know due to settlement of the estate? Also the asset she has is valued at $300,000 which she is allowed to have on full pension, isn’t she?
If she sells the asset it could sell for more so she would have an extra $30,000 that she plans to use to pay debts. Does this extra $30,000 affect her pension? The rest she plans to gift but if it’s only $300,000 she gifts it should not affect her pension ? Correct?
Hi Anna, there is a lot to digest and talk through so it would be best to book a consultation with one of our specialists HERE.
What if you gift to a son or daughter
Hi Rhonda, we have covered the gifting rules and potential impacts quite extensively in previous articles that you can search and read on our website. The most recent one is HERE.
Could you buy a more expensive house
I am 67 years old, on a full pension, own my own home and will be inheriting approx $500,000. Can I sell my current home, combine it with inheritance and purchase a more expensive home without losing my pension?
Hi Anna, thanks for your question! In theory this is possible however although you may not lose your pension it would likely still reduce until you make the new purchase. This is because you can have an exemption applied to the funds you receive from selling your house but the inheritance you receive will be assessable from the day you receive it until you spend it on the new home.
Just picking up on what was said that cars, caravans and bikes are not deemed. Sorry what does this mean? They are assessable as an asset, yes but don’t understand about not been deemed.
Hi Rose, we’ve covered deeming in other articles that you can find on our website, most recently in THIS ONE.
My wife has an accumulation super fund
She wishes to withdraw a one off payment of $40,000 to purchase a new car
Will the super fund continue in the accumulation mode after this withdrawal
She is retired and her age is 63
Cheers
I believe so until she reaches the Age pension age. However, the widrawal of $40,000 may be assessed under the Asset and Income test if one or both of you are of recipient of Centrelink payments.
My mother receives an age pension from centrelink, soon, she will get an inheritance too (a property that belongs to her ancestors has just been sold, and the money will be distributed among the beneficiaries, including my mum.
This property is overseas, my brother, who lives overseas, has a full authority (power of attorney) to receive the money himself, and he will deposit it into his bank account overseas.
My mum wishes to distribute the money among her sons and daughters, so she doesn’t want the money to be transferred to her bank account in Australia.
My question is, will she be legally obliged to inform centrelink about this inheritance? Many thanks.
Hi Teemu, thanks for your question. The simple answer is that if her name is listed in the Will as one of the beneficiaries, then yes. Any property whether in Australia or overseas is classed as an assessable asset by Centrelink. The proceeds from the sale of this property she inherits will subsequently be her money to distribute among her sons and daughters. The bank account being in Australia or overseas doesn’t make a difference, it is still her asset.
I will be receiving an inheritance of $300,000. I receive the age pension (part). My wife is working. I plan to pay the whole amount into her super as non-concessional using the bring forward provision. Do I need to notify Centrelink? Does this impact my age pension which is currently assessed based on my wife’s income. She will not be eligible for the age pension for a number of years
Hi Graham, presuming your wife is under Age Pension age and that her super is still in accumulation phase then no this will not impact your Age Pension. Having said that, we’d recommend still letting Centrelink know because if they find out later on that you received a $300,000 payment they may then ask for evidence of where it went at the time.
I know an elderly lady who is a disability pensioner. Her only assets are her home contents, recently she received an inheritance from her late mother and I do not believe she has reported this to Centrelink. I do not believe the amount of money would affect her pension. My concern is that her NDIS support worker, a single mother of five dependant children, has convinced this lady, up to now, to give her over $30,000 to help her with her money worries. The support worker is still putting the hard word on this lady, who said. No. But says she will continue to provide food for that family. I have notified NDIS, with no reply. The disabled lady does have some mental health problems and needs intervention with what’s going on, MY NDIS complaint 57904. I do not think what’s happening is right can you intervene.???
Hi Judith, sounds like you have done the right thing by contacting NDIS. If you happen to know the name of the company this worker is employed by you could try to contact them directly also. Maybe one of your fellow readers has some experience and could make a suggestion as this is a little outside our expertise but it sounds like you have followed the right process.
Hi my husband and I are both on age pension ,my mum has just passed away leaving her house to my brother and I but the will says my brother can live in this house as long as he can maintain it so I don’t get anything at this stage I can’t charge him rent he also only gets aged pension will centerlink count my half of said house as an asset I’m not making any income from this but will it count as an asset.
Hi Susan, it depends on how the property title is set up after your mother’s passing. We recommend speaking with a solicitor familiar with property law to understand the pros and cons of your options so you can decide what is best for you and your brother.
What about putting the inheritance into a trust/family trust where the trusties and the only beneficiaries are the children?
Hi Bill, trusts can be set up in many different ways so it would be best to seek professional assistance before proceeding to make sure you are doing what is best for you.
If you get a Deed of Variation to a will where your inheritance goes to someone else is that deemed a gift from us, my MIL has a clause in her will that if my wife passes away before her then her share it goes to our two children , we would rather they have it than us, hence the deed of variation. Your opinion would be appreciated.
Hi Garry, in the scenario you have presented it would not be considered a gift because the asset goes straight from your MIL to your children. It would be gifting if it was to go to you and then you chose to give it to the children.
Thanks for the info Steven , That was what i thought but wasn’t 100%, any inheritance will put us well over the asset limit,
My mother passed away recently in Australia. She had a bank account with some savings overseas, and when I inherit it I plan to transfer it into my home loan. Do I need to report it to Centrelink even if I’m not receiving Centrelink payments?
Hi Rose, if you do not receive any payments from Centrelink you do not need to report anything to do with your income/assets to them.
Good morning Administrator,
I’d appreciate your advice to my question. I’m a widower, 86 y. o. and on full single age pension. My assets include my home assets and a quarter share of a house for investment together with my children, my share is valued at about $ 165,000. My wife bought a life insurance and now 17 month after she died, the insurer informs me that I’d get a lumpsum of $ 2,000 with $50 / fortnight thereafter.
Would you please tell me how that would affect my age pension.
Thank you very much
Hi Mario, you can enter all of this data into our free online calculator HERE to see what, if any, impact there is. Alternatively you can book a consultation with one of our specialists, via THIS LINK, who can go over it with you.
Am on the disability pension, if I received a money inheritance which was say total $150,000 and they (Centrelink) charge me 2.25% interest, how much is taken out of my pension each time, and how is it calculated, I’m a non home owner, thus would be my total assets or is it classed as in my bank, I’m not sure as there are two sections to access when the time comes, assets and bank?
Hi Gaylene, we are not fully across the disability pension so wouldn’t be able to confidently answer your question and recommend you call Centrelink on 132 717 to speak with a Disability, Sickness & Carer specialist.
Hi and TIA for your advice!
My husband is on a disability pension and I am his carer on a carers pension. He is about to inherit funds that will put us over the asset limit. He is 65 and I am 61. We know he can put $360k in his super but we also want to put same in my super. Will Centrelink consider this as a gift from my husband or would be ok as we are married and living together? I have spoken to them about the inheritance and it was all good but didn’t clarify that it was left to him not both of us. Have since worried when they see it was left to him and not me they will consider it a gift? Thanks
Hi Janette, thankfully the answer is no, Centrelink do not assess money transferred between a couple as gifting.