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How do gifts affect aged care fees and the age pension?

It isn’t uncommon for parents to want to help their children or other family members financially through a gift of cash. But did you know that providing a financial gift can affect your age pension and aged care costs? If this is something you are considering, it is important to consider how this may affect your personal circumstances now and in the future.

Age pension and aged care costs can be affected if the gifts are not within Centrelink and Department of Veterans Affairs (DVA) rules. Monetary gifts can also affect personal cashflow.

Age pension rules    

Centrelink and DVA allow pensioners to gift $10,000 per financial year and $30,000 over a rolling five year period without affecting pension entitlements. A gift is something given without a payment of equal consideration in return and can include cash, shares, managed funds, boats, cars, caravans, and furniture and real estate.

Excess financial gifts are considered by Centrelink/DVA to be a deprived asset and are subject to the deeming rules under the age pension income test. Deprived amounts count for a period of five years from the date of the gift which can mean a loss or reduction of pension. Importantly, gifts given up to five years before applying for an age pension are also assessed if they exceed the allowable limits. 

Aged care rules

Centrelink or DVA assess an individual’s assets and income to determine their aged care accommodation and care costs. Gifts that are counted as a deprived asset are used to determine these costs. Gifting and the deprivation rules apply even if the resident does not receive an age pension. Gifts given within five years of a resident moving into aged care are assessed and where deprivation has occurred this can mean the resident is assessed to pay a higher accommodation payment and/or care costs even though their assets are lower at the time of entry. This can create a financial burden on the individual wishing to enter aged care as cash or investments may be insufficient to meet aged care costs and fees. 

Non – assessable gifts

Gifts given to a spouse are not assessable for age pension or aged care fee assessment. This is because all assets and income are split 50/50 between partners regardless of who owns the asset or who receives the income. Exemptions apply to the gifting rules when giving to a Special Disability trust for which special rules apply. 

Pensioners in receipt of a non-means tested pension are generally not affected by the gifting rules, such as those receiving a Blind age pension or the War Widow(er)’s pension. For those receiving a War Widow(er)’s pension, a means tested Income Support Supplement is generally paid which is subject to the gifting rules.                

Granny flats and life interests

Older Australians can choose to live with their families for support, care and comfort as they age. This can be done by having their family live in their home with an agreement for the parents to remain in residence for the rest of their lives. Alternatively, a granny flat can be built on their child’s property for the parents to live in.  In most instances the transfer of title or the costs of building a granny flat are not assessed as a gift. However, if it could have been anticipated at the time the interest was created the parent would need aged care within five years, Centrelink or DVA can consider the payment for accommodation or transfer of home title as a gift and subsequently considered to be a deprived asset. This could mean the loss or reduction of pension entitlements and increased aged care costs.

These matters can be complex. To help you make an informed decision about aged care and age pension considerations please contact us to find out about our specialist Lifestyle and Care division.

Our team of specialist advisers have helped thousands of families make the move with confidence.