Social security estate planning implications

Topic Objectives

• Understand the implications of estate planning on social security recipients;
• Understand methods to improve social security entitlements;
• Understand the Centrelink treatment of assets in private trusts and companies;
• Understand Special Disability Trusts;
• Understand how deprivation affects assets relating to deceased estates;
• Understand the implications of life interests; and
• Understand what payments and processes occur upon the death of a pensioner.

Why is estate planning important for social security recipients?

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Estate planning is important for recipients of social security benefits to consider as receiving an inheritance may alter his/her social security entitlement.  This is particularly prevalent when one member of a couple dies as the survivor is then treated as a single person with lower thresholds under income and assets tests.  This means that the levels of assets and income at which the pension starts to reduce and ultimately ceases are reduced which may result in a lower pension or even a complete loss of pension for the beneficiary.

This is not to say that inheritances should not be left to social security recipients as the inheritance may still improve their lifestyle and wealth despite a reduction in social security entitlements.

Estate planning is of course not restricted to when a person dies.  People can give away assets to others during their lifetime as well.  This can be a useful strategy when a will could potentially be challenged.  However, recipients of social security

should be mindful of the gifting rules if considering this course of action.  

Gifting Rules and Limits

Deprivation occurs where a person gifts income or an asset and does not receive adequate financial consideration in return.  Deprivation and gifting rules apply to all means-tested pensions, allowances and benefits.

A single person (or a couple combined) can gift up to $10,000 per financial year over a 5-year rolling period, up to a maximum of $30,000, without it adversely affecting their Centrelink entitlements.

If the gifting occurs less than 5 years before becoming a pensioner, or a gift is made when the person is a pensioner, the value of the gift in excess of $10,000 (in each year) is considered to be a deprived asset.