Inherited money? Your pension may change.

Receiving an inheritance can bring mixed emotions. It may improve your financial position, but it usually means you are grieving the loss of someone close to you.

If you receive a Centrelink or Department of Veterans’ Affairs (DVA) payment, an inheritance can also affect your entitlements. Understanding the rules can help you avoid surprises and make better decisions.

When does Centrelink assess an inheritance?

If you receive a means-tested Centrelink or DVA payment, you need to advise changes in your financial circumstances.

However, simply being named as a beneficiary in a Will does not mean the inheritance is immediately counted as your asset. Finalising a deceased estate can take time. Debts may need to be paid, assets sold and disputes resolved before beneficiaries receive their inheritance. Centrelink/DVA will generally not assess your inheritance until it is able to be paid to you. That is when you need to update Centrelink/DVA.

What happens next will depend on what you inherit and what you do with it.

An inheritance may therefore reduce your pension or other benefits. If you receive aged care services, it could also affect the fees you pay.

Can you give your inheritance to someone else?

You might decide you don’t need the inheritance and would rather it went to your children or grandchildren. Unfortunately, giving up your inheritance after someone has died may not avoid the Centrelink consequences.

Gifting and deprivation rules apply if you give away your entitlement or ask the executor to distribute your share to somebody else. And the result can be unfortunate. Centrelink may continue to treat the inheritance as your asset for five years, even though you have given it away and can no longer use the money yourself.

An example Harriett is a widow receiving a part Age Pension. Her mother dies and leaves an inheritance. Harriett is financially comfortable and would prefer the money to go to her children, who have mortgages and young families. If Harriett simply gives up her inheritance so the executor can distribute it to her children, Centrelink may treat this as gifting. This could affect Harriett’s pension even though she does not receive the money. A better result may have been possible if Harriett’s mother had discussed her wishes with the family earlier and structured her Will differently.

What happens when your spouse dies?

The death of a spouse can also affect Centrelink/DVA entitlements, even if the surviving spouse does not become significantly wealthier. This is because you move from being assessed as a couple to being assessed as a single person.

While the single pension rate is higher than the rate paid to each member of a couple, the income and asset thresholds also change. Taking full ownership of assets previously owned as a couple, may lead to a reduction in entitlements.

Planning ahead can make a difference

An inheritance can affect more than your bank balance. It may change your Centrelink or DVA payments, aged care fees and overall financial position.

Importantly, some decisions are difficult to undo once a person has died.

If an inheritance is expected, or you are preparing your own estate plan, it can be worthwhile seeking advice early. Good planning can help you understand the consequences, consider your options and potentially achieve a better outcome for you and your family.

We offer advice to help you make the right choices. If you'd like to talk through your situation, contact us today on (08) 8223 6880 to arrange an appointment.

Important information: Denise Kipling (ARN 235861) is an Authorised Representative of Financial Success SA Pty Ltd (ACN 105 603 058) ATF the Financial Success Trust ABN 68 114 614 838 t/as Financial Success specialising in Aged Care Financial Advice is a Corporate Authorised Representative No 235520 of InterPrac Financial Planning Pty Ltd AFSL 246638 ABN 14 076 093 680. The advice contained in this document is of a general nature and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs; obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS and seek financial advice. No responsibility is taken for persons acting on the information within this document.  Persons doing so, do at their own risk.