When preparing a Will, one of the biggest questions is usually: Who should inherit my assets?
However, there is another important question to consider: What could receiving those assets mean for the beneficiary?
An inheritance can affect Centrelink or Department of Veterans’ Affairs (DVA) entitlements. It may also affect aged care fees and a beneficiary’s broader financial position.
Considering these issues early may give you more options. Trying to change arrangements after someone dies can be more difficult.
An inheritance can have unintended consequences
Leaving money or assets to a family member can improve their financial position. However, it may also affect their means-tested government benefits.
For someone receiving the Age Pension or another means-tested payment, Centrelink or DVA may consider inherited assets under the relevant income and assets tests.
An inheritance may also affect someone who receives aged care services. Changes to their financial circumstances may influence the fees they pay.
This does not necessarily mean you should avoid leaving an inheritance. Instead, it highlights the importance of considering each beneficiary’s circumstances when planning your estate.
Why can’t the beneficiary just give it away?
You may assume that a beneficiary can simply give away an inheritance they do not need or want.
However, Centrelink and DVA gifting and deprivation rules can make this more complicated.
A person may become entitled to an inheritance and then decide to give it away. They may also ask the executor to redirect their share to somebody else. Centrelink or DVA may treat these decisions as gifting.
If the amount exceeds the relevant gifting limits, Centrelink or DVA may continue to assess the deprived amount for up to five years.
As a result, the beneficiary may no longer have access to the money. However, it could still affect their means-tested entitlements.
Estate planning is about more than dividing assets
Good estate planning involves thinking about the people who will ultimately receive your assets. Their individual circumstances can make a difference.
For example, beneficiaries may have very different financial situations. One may receive the Age Pension. Another may be entering residential aged care. A third may have no means-tested entitlements at all.
The same inheritance can therefore have different implications for each person.
Estate planning can involve legal, tax and financial considerations. For this reason, coordination between the appropriate professional advisers can be valuable.
Some decisions are difficult to undo
Considering these issues early can be important because your options may become more limited after a person dies.
You may have more options when preparing or reviewing a Will. Once an estate is being administered, making changes can become much more difficult.
It can also be worthwhile reviewing your estate plan regularly. This is particularly important when your circumstances or those of your intended beneficiaries change.
Planning for the bigger picture
Estate planning is not simply about deciding who receives your home, investments or savings.
It can also involve considering how an inheritance may affect a beneficiary’s financial position. This includes their Centrelink or DVA entitlements and aged care arrangements.
Taking a broader view can help you understand the potential financial implications for the people who will receive your assets.
Thinking about your estate plan or expecting an inheritance?
Seeking advice early can help you understand the financial implications. It can also identify issues you may wish to discuss with your legal adviser when preparing or reviewing your estate plan.
Contact Forman Financial Services today or book a meeting to discuss how inheritance and estate planning may interact with your family’s financial circumstances here.
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.