Gifting considerations for your future

Many retirees want to help younger family members by gifting part of their savings or assets. However, if things go wrong in the future, the joy may turn to grief. Gifting may benefit children and grandchildren, but it could also have significant impacts on a retiree’s future—especially if an aged care need arises.

Gifting assets may not have the impact you expect, as gifts are still assessable for five years if you gift more than the allowable thresholds. If you gift more than $10,000 in a financial year (and $30,000 over any rolling five-year period), the excess amount will count as a deprived asset for the next five years. This may then affect your eligibility for any means-tested government concessions, such as the age pension, and influences how much you will be asked to pay in aged care fees.

Our specialist Lifestyle and Care Adviser, Kerri Mendl, shares her top three tips to consider when gifting.

Tips to consider when gifting

Checking asset values to ensure they don’t exceed gifting threshold

This is crucial. Kerri has helped clients with many gifting scenarios as an adviser, however, a common scenario she deals with involves gifting their used car to a child or grandchild. When meeting with clients, she highlights the importance of ‘’assessing the market value of the car and ensuring that the asset remains within the threshold amount.’’ If the vehicle is worth more than $10,000, consider the condition of the car and whether the value recorded with Centrelink reflects its current sale value. The value can be updated before gifting is declared. If you gift a $20,000 car, the extra $10,000 over the $10,000 threshold will be assessed for five years. Where this occurs, Centrelink/DVA will assess the portion over the threshold, which has the potential to impact your pension entitlements and increase aged care fees in the future.

Understand enduring power of attorney gifting rules

If you’re an enduring power of attorney for a loved one, it’s important you understand what you are able to do. Kerri explains, ‘’ It’s important to seek legal advice to ensure the enduring power of attorney has the required powers, to allow a gift to be provided along with any limitations or restrictions.’’ Banks are vigilant against elder abuse and will not hesitate to refer breaches to the relevant state or territory tribunal.

Get advice if you’re transferring a large gift

When transferring substantial gifts such as property or giving money to your family in return for the right to live with them, it’s crucial that you are aware of the gifting rules and the potential impact they may have on your pension and aged care fees in the future. Due to the significant nature of these transfers, Kerri highlights this is where professional financial advice can be invaluable.

A common scenario

Peter recently transitioned into permanent care while his wife Sue continued to live in their daughter Jenny’s home. Having financially supported their daughter and maintaining savings of just over $120,000, Peter and Sue faced unexpected challenges to afford the aged care fees.

Their status as non-homeowners, as recorded by Centrelink, triggered an automatic assessment of Peter’s fees. Services Australia’s fee letter revealed a Daily Accommodation Contribution (DAC) of $54.36 a day ($19,841 a year). This concerned Jenny as she did not know how her parents would pay an extra $380 a week. 

Why was the DAC so high?

The reason behind the high DAC stemmed from the assessable assets recorded with Centrelink, showing $171,588 each. The main issue was the inclusion of $100,000 each for a Granny Flat Arrangement (GFA) that started in May 2021. When Services Australia obtained the asset details from Centrelink for the aged care fee assessment, they lacked information to exclude the GFA ($100,000 each).

How did our Lifestyle and Care team help

The family were greatly relieved to hear that the granny flat arrangement is exempt for aged care fee assessment purposes, as it is still ongoing with Sue residing in the home. However, securing this exemption proved challenging for the family as they didn’t know what to do. Our Lifestyle and Care team were able to navigate the system to have the original assessment reviewed, update the bank balances, and reduce the Daily Accommodation Contribution from $54.36 a day to $0, making Peter’s fees fully supported.

What about Sue?

Concerns still loomed over Sue’s potential future care needs. Her daughter, Jenny, contemplated returning some of the funds her parents had given her to alleviate their financial burdens. Fortunately, this was unnecessary in their case, bringing relief to Sue and her daughter.

As a result of getting advice, the family know that the only concern now is if Sue requires permanent care in the near future. After this, marking over five years since the initiation of the Granny Flat Arrangement, it would be treated as fair value received. Consequently, both Peter and Sue’s aged care fees would be fully supported, offering reassurance and clarity for their future arrangements.

The key is to take care before gifting, as protecting your financial future is just as important as helping family members to secure theirs. Gifting assets may leave you with insufficient resources to fund future needs or to adapt to any changes. With a specialist division of financial advisers like Kerri, who are accredited in aged care advice, we have a team that can talk about the various options and explain the many financial considerations. Our team can also connect you with a trusted organisation who can help guide you through the care choices that best align to your unique care situation. Learn more about our accredited aged care financial advisers.

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