Pension Types Impacted by Inheritance

Payments which may be impacted by inheritance include:

• Age Pension
• JobSeeker
• Disability Support Pension
• Carer Payment

Each of these payments, among others, will be subject to an assets and income test. 

The impact of an inheritance on a pension will depend on the person’s assets and income. 

How Inheritance Can Affect Your Pension

Inheritance may impact a person’s pension, as it will increase the value of the person’s assets and be taken into account in the assets test. This can have an immediate impact on the pension. 

Inheritance may also impact a person’s pension, as income generated from the inheritance will be counted in the income test. This may have a longer-term impact on a person depending on the nature and value of the income. 

Although Centrelink means-tests inheritance, the full impact on a pension can only be determined after a detailed consideration of a person’s assets and income. 

Lump-Sum Inheritance and Pension Eligibility

An inheritance received as a lump sum will be counted as an asset under the assets test. If the inheritance pushes the person’s assets over a certain value, this may result in a partial reduction of the pension or cancellation of the pension altogether. 

Financial planning can help ensure that a person’s assets and income are managed effectively to maintain ongoing entitlement to the pension. 

How Investments from Inheritance Are Assessed

Where an inheritance is taken in the form of property, shares, or term deposits, the value of the income is not always presently ascertainable. In these cases, the income may be deemed under Centrelink’s income deeming rules. 

Even where income is not actually earned (i.e. where money is held in a non-interest bearing account or it is loaned out on interest free terms), Centrelink may deem the person as receiving income, and the deemed income may impact the pension under the income test. 

Centrelink’s asset test rules and Centrelink’s income test rules can be complicated, and financial planners can assist with achieving a favourable solutio,n especially in respect of deemed income under Centrelink rules.

Timing and Reporting of Inheritance to Centrelink

Beneficiaries must report inheritance to Centrelink within 14 days.

Reporting can be done via the Centrelink app, the Centrelink Online Portal, or in person. 

Declaring inheritance to Centrelink is important as a failure to accurately report inheritance can result in overpayments and future Centrelink debt recovery. 

Strategies to Minimise Impact on Your Pension

There are several strategies which may be available to reduce the impact of an inheritance on the pension. 

One example is using inheritance to purchase a principal place of residence or upgrade an existing principal place of residence. A person may also be able to use the inheritance to pay down the mortgage for their principal place of residence, however, this will depend on the nature of the loan. 

Another example is gifting small amounts in accordance with the thresholds. This gradual divestment may reduce the assets and income held overtime. 

Another potential strategy is for the beneficiary to consider these issues well before they inherit and before the death of the person whom they anticipate inheriting from. In some cases, it may be possible for the testator to restructure their assets, or do a new will, to avoid the person inheriting altogether, to avoid impacting their pensions. 

Each of these options have their own risks and a person should seek advice on their specific circumstances before taking any steps.  

Seeking Advice from Financial Planners and Legal Experts

Any person who wants to protect their pension income should seek financial advice on inheritance and pension from a financial planner before taking any steps. 

Financial planners will be able to provide tailored advice in respect of the client’s specific circumstances, and help structure assets to minimise impacts on pension. 

Empower Wills and Estate Lawyers can also assist by providing estate planning services and restructuring assets before an inheritance is received. After an inheritance is received, we can also provide legal advice on inheritance and pension entitlements and implement any steps to best protect your pension at that point. 

Need Help Understanding Pension and Inheritance Rules? Contact Us Today!

If you believe you might inherit over the coming years but are worried it may impact your pension, or have already inherited and would like advice on how inheritance affects pension, call Empower Wills and Estate Lawyers today on 1300 414 844 or send us a website enquiry.

Empower Wills and Estate Lawyers are leading wills and estate lawyers in Sydney with experience in Centrelink and inheritance in Australia. We can provide legal advice on inheritance and pensions including advice on how inheritance affects benefits and advice on Centrelink inheritance rules, and work with a financial planner to achieve the most favourable inheritance Centrelink and pension position to avoid a pension reduction after inheritance. 

Liability limited by a scheme approved under Professional Standards Legislation.

Disclaimer: the information in this article relates to NSW law as at the date it was written and is general information only. It does not constitute legal advice and should not be relied upon as legal advice. It may contain information or links to sources which are no longer current. If you have a question or legal issue, we recommend you contact a lawyer and obtain legal advice that takes into account your specific facts, circumstances, needs and objectives.