Hi, aged in our seventies we are looking at selling our home of thirty years and moving into a lifestyle village. We need $700,000 and my two children want to retain the existing house. Thinking of selling them one third each and retaining one third share at $350,000 per share total value $1,050,000 about retail value.
We would then have a new main residence and a share in an investment property worth $350,000.
We are on a part pension now but the extra asset of $350,000 would put us just below the threshold of the age pension resulting in a combined loss of about $1000 per fortnight with only one third of the rent maybe $400 per fortnight extra income which would be added to the income side of the pension and maybe reduce it further.
Should we see an accountant or Financial Adviser to find a way to put the rental asset into a trust or some vessel to remove it from our assets and assist the kids as well or has anyone else have a solution.
With the loss of income it would make it near impossible to make the move.
Help with Aged Pension Problem
Comments
Damn leeches.
Kids will pay market value, they just want to keep the house in the family
As the children I'd be happy to cut off the parents and call it even. These children are lucky. Some of us have financially irresponsible parents.
Why not sell them half each? Wouldn't that solve the problem?
That solves half the issue, the OP would still have $350k worth of assets to come under the assets test where it was previously not assessible under the PPoR.
True. Would sticking it in a super fund help? I guess this is where seeing a financial planner comes in.
But where could you find an ethical financial planner?
All the ones we've talked with have the one aim - to maximise their commission!
One adviser, who works for a 'big-four' bank with 3 letters, initially told us we'd get 90% back after the annuity expired, then when we went to sign up we were told it was now 75% !!
They are all rogues that rely on self-regulation, which, when you think about it, is no regulation at all.
@Forkinhell: Commissions were banned from 2014 onwards. Many existing pre 2014 products which grandfathered commissions have also now stopped paying any commission.
Painting the entire industry with the same brush isn't going to help anyone.
Remember, the royal commission into misconduct wasn't exactly looking for positive stories…
The people who do have advisers are generally happy and have more peace of mind than non advised.
Sale has to be at market value
Can they not afford half each?
OP can gift them 20k each a year. No tax.
@Mokr: Mokr - No it's 10K a year up to $30K every 5 years. Ie give $10k for 3 years then wait to start again at the end of 5 years .
Year 1 10K
Year 2 10K
Year 3 10K
Year 4
Year 5
Year 6 10K etcThe allowable disposal amount is the same if you're a single person or a couple
No
@Hol: Well, that's their problem then. They can come up with the cash to buy it (they could ask a friend or other family member to go in with them on it) or it will be sold to a stranger. You shouldn't have a horrible retirement just because of their nostalgic feelings. Definitely talk to a trustworthy financial planner though.
@Quantumcat: Doesnt solve the issue, as they still end up with 350K more in assets
House = $1Mill+ retirement home is 700K therefore $300K+ is now assessable - therefore pension is reduced.
Selling to kids/strangers is totally irrelevant in this situation
@RockyRaccoon: Well at least the money wouldn't be in something that is producing way less income than the amount the pension is reduced by. If they have it as liquid they can invest in something that will be a profit vs the amount of pension lost due to having it. Financial planner will help.
@Quantumcat: Totally correct points, just that the way the asset test affects the pension means that this will need to be at least 8-9% p.a. to offset the reduction.
Should we see an accountant or Financial Adviser
Yes..
There is quite a bit to be worked through here, more than can be adequately assessed in this forum.
Speak with an accountant, not a financial adviser, and see what your options are.
I'm not sure thst an accountant can give financial advice.
I agree. See an accountant/advisor.
There is a new publication, which only came out a few months back "avoiding the ageing parent trap" by Brian Herd.
Brian is a lawyer, who specialises in Elder Law-He is based in SE Qld. Excellent reading. It may be worth a call, as Brian also has clients in N.NSW.Was able to borrow this book online from library, brilliant book which should be read by everyone who have parents still alive.Gives great examples of what can happen if planning is not carried out.
Unfortunately didn’t cover my particular problem.
You need somebody that is across the Tax, Financial, Centrelink, Legal considerations.
Give the kids an ultimatum. Pay/fund retirement home else house is sold. Give them the choice
How much is the house valued at?
Just over one million
See an accountant. But generally no, you can't just stuff it in a trust and sidestep asset tests, otherwise everyone would do that.
But I'd review how you're planning on retiring. If after paying whatever to the lifestyle village you still have $900k of assets disqualifying you for a part pension, still have an income and still can't afford to retire without the government chipping in it might be time to scale things back a little.
I believe that trusts are also expensive to set up & manage.
Plus the wealthy don't want 'just anyone' using Trusts.
Trusts are for the super rich so that they pay no tax.They're not that bad expense-wise for a simple setup, easy to manage if you already have an accountant and earn far more than you can spend because you can use them to keep reinvesting earnings rather than paying out a mass of tax on it. I used to work as a tax accountant, cost maybe $1k a year in accounting fees/lodging fees about a decade ago.
It's also great for income splitting. Right now I earn a wage, my partner doesn't, but I can't use her tax free threshold. If my income came into a trust and we had equal distribution we'd pay way less tax as a result. I'm tempted to setup something like that if I go freelance just to keep my tax bill down, a company owned by a trust that pays out an equal dividend or something. Like plumbing though, easy if you know what you're doing, hard if you don't and if it goes wrong things can get bad very quickly. So people pay accountants for it.
The super rich keep their money offshore. That's way beyond most of us.
My Mum sold her house and moved into a nursing home. She gifted the proceeds of the sale to the kids, Centrelink deemed she still had that money for 5 years. She kept enough money to pay the difference for the 5 years and leaving herself with 200K in a managed fund.
Sell it and keep it, it's your asset.
If the kids are relying on you to get them through their adult life then maybe they need to reign in their expectations. it's situations like this and borrowing from the bank of mum and dad that's propping up this housing market.The kids get whatever's left when you go.
Sounds like a motive. Giving them the house might be a small payoff with forthcoming assisted suicide legislation.
(Please note this is a joke, I am not suggesting OPs children are plotting their murder)
Kids keep the house -
but have to visit parents in aged care home -
Fair trade
I'm not sure of my advice but I think if you are single ond on pension the amt of cash or assets is higher as individuals so divorce split equity in house and see if that gets you under the limits ?
"Lifestyle village"? I've only heard bad things about these places. Are you sure you want to buy into something like that?
like getting treated badly by age care workers?
For Pension benefits you cant give away assets, it remains part of the asset test for 5 years.
Eg $350,000 you can gift $30k every 5 years without affecting your pension.
The rest $320K you can also gift, but this will be included as an asset in assessing your pension for another 5 years. After that its no longer included. But this has to be given away "now" as the exclusion is 5 years after the gift. Dont think you can give it away in 5 years time, as that will mean its 5 years further on.
If you put it in super it will be classifed as part of your assets for as long as you have it. Once someone is at retirement age which for you would have been 65, centrelink treats it this way, While the ATO may let you put it into super thats for taxation/super rules, that are different rules to centrelinks
You really do need to talk to a financial planner who understands pension requirements. There are ways to reduce your assets as defined by centrelink, with things like annuities, but these need to be structured correctly. They can advise you of these. You can also put something like $20K into a funeral bond, again they can advise on that.
All you can get here is ideas to talk to them about. And from what I have given you, an idea if the financial planner understands the best strategies to use. If they dont know for example the ones I have explained, find another. (of course things do change, but again if they know their stuff they will explain something like - "yes what you were told was accurate a year ago but now….")
Keep in mind you can sell the house to your children, but having it valued would be wise. Of course it would be in your interest to get a couple or more valuations, obviously using that as a guide. You wouldnt be expected to sell at the top of that guide.
We went thru all these issues for the M in L just recently.
This whole things sounds weird.
Why do they want to retain it? If both siblings one an equal portion neither can live in it without drama.
No offence. But as someone quite young I would never ask that of my parents. It’s embarrassing to ask your parent well into adulthood for financial support for no proper reason e.g health issues I can understand or maybe experience a period of unemployment. This sounds like they want a cheap investment property
If I wanted it pay market rate and stay quiet. If I couldn’t afford it, move on.
We would like it retained in the family if possible, nothing about them getting a cheap deal.
I mentioned below money magazine article.
They have this info on their website. In two articles.
https://www.moneymag.com.au/only-need-253k-super-to-retire
https://www.moneymag.com.au/how-to-beat-pension-assets-testEveryone should read that first article,
1. “ example, a homeowning couple with super of more than $401,500 will be worse off in terms of income than a couple with $386,500 who qualify for the full age pension of $37,341. The couple with the higher balance lose $3 a fortnight in the age pension for every $1000 above the assets threshold. That is $78 a year or 7.8% of their incremental assets. In the current interest-rate environment, their savings can't earn nearly enough to offset that penalty.”
2. “ Case studies: How it worksCouples
A 66-year-old couple, Stephen and Anna, who own their home, have $386,500 in super plus home contents and car worth $15,000, taking their total assets to $401,500. They just qualify for the full age pension.
Their income from the age pension ($37,341pa) combines with a $19,325 drawdown from their super's account-based pension. This assumes they draw down their super at the normal minimum rate of 5%. Their total retirement income is $56,666 a year.
This compares with Peter and Jill, who have super of, say, $1.13 million in an account-based pension. Peter and Jill do not qualify for the age pension because their assets are too high. They will have a similar income of $56,500 based on a 5% drawdown of their account-based pension.
So, Stephen and Anna, with $386,500 in super, will have the same income as Peter and Jill, who have saved almost three times as much.
The super sweet spot at age 66 for a homeowning couple with modest other assets is $386,500.”
First step: make an appointment at Centrelink to see a FIS (Financial Information Service). Free service to everyone, very knowledgeable, unbiased cos not there to sell you anything. They can run through the options you're considering and what kind of impact each would have and then you can make a more informed decision what you want to do.
Yes another good point, especially as hopefully they haven’t made any commitments yet.
As an extra bit of information, the June issue of Money magazine has a very good article on Pensions and assets. Page 33 on.
If newsagents don’t have a back copy, the Library will.
The Pension is a safety net intended to assist those who found themselves in their senior years, struggling to make ends meet. Do you honestly believe you meet that criteria? Are you so poor, that you eat baked beans every night, unable to pay electricity, so you never use lights, or heaters in winter, are you one of these people? Are you one of those unfortunate finding themselves in a precarious position within the rental market, fearing each day and night of being evicted at any moment, do you think this is you? NO… you get on here skating about a million dollar asset, then crying about losing a few dollars on a pension, that frankly, do you honestly feel you deserve? NO…
Sell the lot to your children and purchase a better home.
Selling it to the children or 'one thirds x 3' would burn a lot of money in stamp duty.
If the children really want to keep it in the family, then can you or they borrow the money that you need and use the house as collateral?
Sometimes people tie themselves up in knots over trying to hold onto the pension.
Rental income (probably low tax if you have little other income) would support you, plus help with the repayments.
And the children inherit the house.
In the end, you come first. - You have earnt it!
PS if you own a real estate asset it does not come under the 'assets test'. It is a financial asset and Income is 'deemed' on it. That 'deemed income' goes into the income test.Have you thought about estate planning, and finalised your wills etc?
Yes
You guys are in your 70s, time to cut off the children