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.
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.
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.
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