You receive an inheritance but decide you don’t really need the money. Perhaps you would rather it went to your children or grandchildren. They may have mortgages, school fees or other expenses.
It might seem straightforward to simply give the inheritance away.
However, if you receive a Centrelink or Department of Veterans’ Affairs (DVA) payment, there is another consideration. It is important to understand the gifting rules before making that decision.
Can you simply give up your inheritance?
Giving away your entitlement to an inheritance after someone has died may not prevent it from affecting your Centrelink position.
Gifting and deprivation rules may apply if you give away your entitlement. They may also apply if you ask the executor to distribute your share to somebody else.
This can create an unexpected situation. You may no longer have access to the money, but Centrelink may still assess some or all of the amount under the deprivation rules.
Amounts that exceed the allowable gifting limits may continue to be assessed for five years.
An example
Consider Harriett, a widow receiving a part Age Pension.
Harriett’s mother passes away and leaves her an inheritance. Harriett is financially comfortable and would prefer the money to go to her children. They have mortgages and young families.
Rather than receiving the inheritance herself, Harriett asks for her entitlement to be distributed to her children.
Harriett may view this as simply passing the money on to the next generation. However, Centrelink may view the decision differently.
Gifting and deprivation rules may apply to the amount. As a result, the decision could affect Harriett’s Age Pension even though she cannot use the money herself.
Why planning ahead matters
The timing of estate planning can be important.
In Harriett’s situation, a different outcome may have been possible with earlier planning. Her mother could have discussed her wishes with the family and considered the structure of her Will.
Once someone has died and an entitlement to an inheritance has arisen, the available options can be more limited.
Estate planning should therefore consider more than who receives an inheritance. It can also be important to consider the financial implications for each beneficiary.
Before giving money away, understand the consequences
Helping children or grandchildren financially can be an important goal. However, giving away assets without understanding the rules could have unintended consequences.
This is particularly important if you receive Centrelink or DVA benefits.
Getting advice before making a gift can help you understand how the decision may affect your entitlements. It can also help you consider whether other options are available.
Considering giving away an inheritance?
Before redirecting, declining or gifting an inheritance, consider how Centrelink or DVA may treat the transaction.
Contact Forman Financial Services today or book a meeting to discuss your circumstances before making a decision.
Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.