How can sale proceeds be best shared among siblings?

Probable consequences on aged-care costs and pensions explained.

Is home sale a possible minefield?

Marina is seeking information about the ramifications of her mother-in-law selling her home and sharing the proceeds among her siblings. She asks Noel Whittaker for guidance.

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Q. Marina
My mother-in-law is in aged care and nearly 90. She has decided to sell the family home she lived in for more than 30 years and wants to keep a sum of money for her upkeep and distribute the rest to her three siblings while she is alive.

First, is there any barrier to this? The siblings are married and all are retired and receive some sort of Age Pension. Will all, including the mother-in-law, have to pay taxes individually on the sale, which could be around $1.6 million? We understand the Age Pensions may stop but we would like to know the best way to address in order to minimise disadvantage.

The grown-up children of the marriages are looking for a benefit when things are settled and this information may assist in decisions. Any information or recommendations would be helpful.

A. My book co-author and aged care guru Rachel Lane explains: You can gift as much as you want, just be aware of the consequences. If the home is retained, the maximum asset value they will ascribe to it is $166,707. If it is sold, the full $1.6 million (if that is the sale price) will be assessed as an asset and if that money is placed in financial investments, it will also be deemed to earn income.

This change in assessment can see the Means Tested Care Fee increase from a few dollars a day to in excess of $200 a day, which she can pay until she reaches the annual cap of $27,232 with a lifetime limit of $65,358.

If your mother-in-law receives a pension, the former home will be exempt as an asset for two years from the date she entered care. If the home is sold, she will be treated as a non-homeowner, with a higher asset threshold; but given the amount she will receive, her pension will be lost.

From a tax point of view, there is no capital gains tax on the principal home and we don’t have gifting taxes. As far as the beneficiaries of these gifts go, the money they receive will become their asset and, if held in financial investments, deemed to earn income.

Before you go down this road, I strongly suggest you seek advice. If someone is doing this under an EPOA (enduring power of attorney) they need to think carefully

Do you have a question you’d like Noel to tackle? Email us at newsletters@yourlifechoices.com.au

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.

To make the most of your money in retirement, first you need to know the rules. The RetirePlanner™ tool has all the information you need.

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    COMMENTS

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    Pancake
    8th Jan 2019
    10:57am
    This story is similar to my family situation except that Mum will be moving in with one of her children. She will be giving all the siblings - except for a 100k - the proceeds of the sale of the family home. I understand she will lose the OAP for 5 years because of the amount she is gifting but that is what the 100k is for. She will still retain her Health Care Card but I expect her to be around for longer than 5 years.
    Rosret
    8th Jan 2019
    11:55am
    Will she keep her health care card? Its OK if she is DVA however the card is asset tested as well.
    Giving money away early is a minefield for the donor especially when they sign away their freedom and independence.
    What a pity we don't all receive a pension regardless and perhaps better decisions would be made for the families and parents.
    Pancake
    8th Jan 2019
    12:24pm
    She won't have any income other than deemed income which will be below the $50k threshold.