Speaking during a recent webinar, MLC Connect warned that while gifting assets can improve Age Pension entitlements in some circumstances, clients risk undermining their own financial security if they focus solely on maximising government benefits.
“Centrelink should not be the main reason to gift assets away, so you must always ensure funding for retirement and aged care,” MLC Connect said.
The webinar examined the interaction between gifting rules, estate planning and social security outcomes, highlighting how poorly structured arrangements can leave surviving spouses worse off or trigger Centrelink deprivation provisions.
MLC Connect said advisers should help clients weigh the trade-offs involved before transferring wealth to family members.
“One of the biggest concerns is, as Janet’s already mentioned, we lose control of the assets – so we can’t have them to take the income from, or to sell those assets to fund our future lifestyle, or fund our aged care needs,” the group said.
“So we’ve always got to be looking at what we’re giving up when we’re gifting against the actual age pension we may be able to get.”
The webinar included several examples demonstrating how inheritance and gifting decisions can affect Age Pension eligibility, particularly following the death of a spouse.
In one case study, MLC Connect highlighted how a widow who inherited assets before gifting them to children would be subject to deprivation rules, potentially reducing the effectiveness of the strategy.
The group argued that earlier estate-planning advice could often deliver better outcomes than gifting after an inheritance has already been received.
“What was the alternate solution? Well, if Bill had got that advice, or been aware of how the system works, he could have amended his will to direct the managed funds to the children,” MLC Connect said.
“Bertha would have received a part-age pension and a pension concession card, as there’s no deprivation.”
The webinar also reinforced the importance of reviewing estate-planning arrangements before a client loses capacity, particularly where testamentary trusts, gifting intentions or other complex structures are involved.
“It’s important to review estate-planning arrangements while clients still have capacity, because sometimes changing their estate plan when they have lost capacity may also mean that their assets are not distributed as they wished,” MLC Connect said.
According to the group, advisers should view Centrelink outcomes as just one consideration within a broader financial strategy, rather than the primary driver of gifting decisions.
“Remember, for each $10,000 gifted, you might increase the age pension by $780 per year,” MLC Connect said.
However, it reiterated that any potential benefit must be weighed against the loss of control over assets and the need to adequately fund retirement and future care costs.
