As we consider financial and care planning in later life, understanding the implications of gifting is important, especially when aged care is looming or you are on a pension. Gifting can seem like a straightforward way to support family, friends or even your favorite charities, but it can have unanticipated impacts on entitlements and payments. We have put together a summary to give you the basics.
What is Gifting?
In financial terms, gifting occurs when you transfer ownership of assets to another person without receiving market value in return. For example, if you sell a car worth $30,000 to a nephew for just $5,000, the $25,000 difference is considered a gift. Similarly, donating money or assets to friends, family or charities falls under the category of gifting. However, not all transfers of money or assets are treated as gifts. Payments made to cover outstanding loans or transfers between members of a couple are exceptions. Granny flat arrangements and Special Disability Trusts also have unique considerations that may not fall under standard gifting rules.
Limits on gifting and their impact on payments
To prevent reductions in government support due to asset transfers, there are limits on how much one can gift without affecting entitlements. These rules are in place to ensure people aren’t left without adequate financial support. The maximum allowable gift without impacting your payments is $10,000 per financial year. Over a five-year period, this amount cannot exceed $30,000 in total. Any amount over these limits will still be included in your assets test, impacting eligibility for payments and services.
Deemed interest and the five-year rule
If you exceed the allowable gifting limits, the excess amount will be deemed as an asset for up to five years following the gift. This means that the deemed interest will be assessed on the excess gift amount, potentially affecting the financial support you’re eligible to receive during this period.
Key considerations when gifting in aged care
Gifting can be a wonderful way to support loved ones or contribute to meaningful causes, but planning is essential to avoid unintended financial implications. Before making significant gifts, it may be wise to consult a financial planner who understands the nuances of aged care and entitlements. This can help ensure you’re making informed decisions that align with both your personal goals and financial security.Planning your gifting wisely can allow you to share with others while safeguarding your financial well-being in aged care. Knowing the guidelines and limits helps you avoid disruptions to your entitlements, so you can give thoughtfully and sustainably.
