Are you thinking of helping out a family member who is looking to buy a house or sending someone on a well-deserved holiday? Or do you have an asset you no longer need, such as a car you’re wanting to pass on to a grandchild?
This article will take you through some of the questions you should ask yourself before bestowing a gift on a family member and some processes to follow to make sure there are no unintended consequences for anyone.
Are you in a position to bestow this gift?
The first thing to consider is whether it is the right gift and the right time. It can be a wonderful feeling to make a significant contribution or pass on an expensive asset, but it’s important to think carefully about whether there might be any negative consequences for yourself.
Things to ask yourself:
If you give away this money, will you have enough left for unexpected events?
Are you being pressured to make this gift?
Will there be expectations of further gifts from other family members?
If you’re feeling pressured, talk to a trusted friend or family member to let them know what’s going on. Or call the Elder Abuse Helpline if you would like professional support to stand-up to someone who is pushing you to do things you don’t want to.
Will the gift affect your age pension or aged care payments?
Centrelink has strict rules in place to make sure people don’t try to reduce their assets as a way of influencing their eligibility for the age pension or the means-tested amount they’re required to pay for aged care.
You can give away up to $30,000 over a 5-year period before it will affect your assets and income tests (the gifts can’t total more than $10,000 in a single financial year). You should inform Centrelink of any gifts, sales or transfers within 14 days to avoid possible overpayment of benefits.
Does it count as a gift if I sell my car or home to my grandchild for less than it’s worth?
Yes. If you sell or transfer an asset and get less in return than it was worth then the difference (between what the family member paid and what the market value of the asset is) will be considered a gift and count towards Centrelink’s $30,000 limit.
This applies to your family home, too. While your principal residence is not generally considered an asset for Centrelink purposes, if you sold your house to a family member for significantly less than it is worth, the difference would be assessed by Centrelink as an asset.
Is the gift an advance on inheritance?
You may have saved money or built up your assets with the intention of passing wealth on to your family members as part of your will. What happens if you want to give that assistance earlier?
Gifting money rather than distributing it through your estate might better support family members when they need it most. You would also have the added satisfaction of being able to see what a difference it makes.
Before gifting a planned inheritance, it is important to get independent legal and financial advice and to make sure your will reflects your intended changes. Document the terms of the gift so there is no confusion for the executor or other family members when it is time to distribute your remaining estate.
It will also be important to consider the consequences on your total estate and whether there will be any consequences for other parties to your will.
What should I do when making a gift to a family member?
1. Have transparent conversations
It is probably a good idea to gently introduce your intention to give rather than springing a gift on someone publicly. Let your family member know you would like to bestow a gift and make sure they are happy to receive it – it may have tax or Centrelink consequences for them.
If there are other family members who may expect a similar gift, think about how you might approach the topic with them.
2. Seek independent legal and financial advice
Make sure you understand the impact of the gift on your finances now and in the future. This includes any effect on the age pension, aged care costs, tax, your estate or your will.
3. Formally document the gift
Keep clear records of your gifts so it’s easy for you to report the gift to Centrelink and the gift recipient can demonstrate that it was a gift and not a loan.
Disclaimer: The information provided on this website is not a substitute for individual legal advice.
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