Protecting your finances and planning your estate after retirement

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In a previous article we wrote about Centrelink deeming income.  In particular, the structure used to hold your assets can result in you being eligible for some Centrelink payments that you would not be eligible for if your assets are not structured correctly.

 Most readers of this article will be either close to retirement or already there.  Everybody will have different tax and financial needs but something everyone will have in common is protecting your assets no matter how big or little they are.

 At a time where your loved ones want to grieve, they do not want to be worrying about where your will is and sorting out your finances.  In addition, you have worked hard to amass what little or grand assets you have so don’t let them go to waste.

Prepaid Funerals

Whilst these are not a tax deduction they are also not classed as an asset by Centrelink.  Therefore if you have some cash sitting around, prepaying for your funeral reduces the burden on family, locks in a price at today’s rates and reduces your assets with Centrelink potentially making you eligible for some further benefits.

 Wills and super

Most people either do not have a will, or it is not up to date.  Do you know where your will is?  Remember your superannuation may not form part of your estate and as such you may need a binding death nomination within your super fund.  Did you know that you can reduce the amount of estate taxes paid by ensuring the right person is the beneficiary of your super?  This can apply to the rest of your assets too.

 Access to bank accounts where only one signatory

Do you have a bank account where your spouse is not a signatory?  Does that account get used to pay the bills?  If so, your family could potentially have difficulty in paying your bills when the account is frozen once you are no longer there to access it.  An enduring power of attorney can be put in place to avoid this issue.

 SMSF

If you have a Self Managed Super Fund and you are individual trustees, your fund becomes non-complying upon the loss of one of the trustees.  This can be avoided by having the executor of your estate step in but also through having a corporate trustee.

 Insurance

Ensuring you are adequately covered and the right entity holds the insurance is vital.

 Investment Properties

As per our previous article on deemed income, holding the property as an individual is generally the best way to go unless you are a property tycoon.  However there are pros and cons of holding the property in a trust or a company.  When to sell is another commonly asked question.  Timing is very important when it comes to selling an asset that may have a capital gain as it makes a difference to the amount of tax you have to pay.

 As you are reading this article you may be thinking of a number of questions.  Give us a call for a free consultation to discuss these matters in more detail or alternatively sign up to our monthly email newsletter by providing us your email address. These monthly editions give advice, tips and up to date information on current and emerging laws.

Posted in Retirement, Super

Funding your retirement

Posted on by admin
 Whether you still have a while to go until you retire, are considering retiring now, or you are retired; you may find the following articles interesting.

 Centrelink deemed income

Biggest mistake most people make, is underestimating how much money they will need to retire comfortably and not putting enough away.  The pension from Centrelink certainly won’t be sufficient if you plan to buy birthday and Christmas presents as well as eat and pay the general cost of living. You can certainly forget about travelling and other holiday plans. 

When considering your eligibility for a pension, did you know that Centrelink consider both your assets and your income in determining how much pension you will qualify for. In some circumstances they may also deem you have earned an income even if you haven’t.

 Take for instance Bob. He retires with some investments in a trust account.  Centrelink will deem him an income on top of the trust profits, therefore reducing his pension to almost nothing.  However, if Bob transfers the investments into his personal name instead of the trust account, Centrelink will ignore any income from the investment and just deem a percentage of income. Although Bob will need to declare his income in his own personal tax return, there are however, various tax offsets available once you reach pension age and in most cases they are sufficient to cover the tax you would have had to pay on your taxable income for the year. 

 The deemed income rules also apply if you have some money in superannuation and you have reached the preservation age. Even if you elect not to drawdown a pension from your super fund, Centrelink will deem you to have received a % as income.

 There are ways around this and it is important to see an accountant and financial planner to ensure that your affairs are set up to your advantage.  In addition, there are Centrelink staff who will come and talk at your event to show you how to get the most pension from Centrelink.

Transition to Retirement

Are you are 55 years or older and working but are considering retirement soon?  You can effectively sacrifice a large portion of your salary into your super fund, thus reducing the tax you pay, then drawing down a tax free pension from your super fund that tops up your disposable income.

 Consider Jane age 55, earning $50,000 in gross income. She pays tax of $8850 plus 1.5% medicare levy leaving net $41150. If she puts $20,000 into her super fund, she will reduce her gross income to $30,000.  She will only pay $3600 tax leaving $26400 net income. She then takes a pension of $14,750 so that she still has net income of $41150.  Jane’s super fund pays tax at 15% on the $20,000 contribution ($3000) meaning total tax paid is $6600. This is a total saving of $2250.

 There are many different strategies available to save you tax and put more money into your retirement. Act now and speak to your accountant or financial adviser.

 Centrelink can assist:

Your local Centrelink office usually has an adviser available to sit down with you and assess your eligibility for a full pension. They can advise you on what you are entitled to depending on your current financial position, your assets and liabilities. Contact your nearest office for an appointment with one of their appointed advisers.

*Please note Centrelink cannot give financial advice and cannot guide you on what investments you should acquire.

Posted in Centrelink, Income, Retirement

Centrelink benefits

Make sure you aren’t missing out! article by Tracey Roberts Financial Planner

Are you missing out on valuable Centrelink benefits because your assets aren’t correctly structured?  Sometimes, restructuring your assets can give you access to benefits like Newstart,  a pension card and/or part aged pension!

 Check with your financial planner to see if they can help or call Tracey Roberts at Foundation Planning Pty Ltd 07 5631 4343 or 0403 844 071 who wil be happy to have an obligation free chat (tracey_roberts@netspace.net.au).

 Here’s a couple of examples of what can sometimes be achieved.

Case Study

Reg (age 65) and his wife Carolyn (age 60) have the following assets:

  • Home – $300,000
  • Super – $380,000 (Reg}
  • Bank account – $10,000 (joint)
  • Car – $20,000
  • Home contents – $10,000

As Reg has recently reached Age Pension age and retired, he would like to apply for the Age Pension. Carolyn has been receiving Newstart Allowance for the past few years.  If Reg uses his entire superannuation balance to commence an allocated pension, he would be entitled to a part Age Pension of $448 per fortnight ($11,648 per annum). Carolyn’s Newstart Allowance would cease as their combined assessable assets now exceed the lower assets test threshold of $265,000*.

 Reg decides to cash in $170,000 of his superannuation benefits. This withdrawal will be completely tax-free^ as Reg is over age 60. Reg will then use this money to make a spouse superannuation contribution into Carolyn’s superannuation fund. Reg will commence an allocated pension with his remaining superannuation balance. As a result of this strategy, Reg & Carolyn’s assessable assets have been reduced by $170,000 to $250,000, which is below the lower assets test threshold of $265,000*.

 Reg will qualify for a full Age Pension of $564.50* per fortnight ($14,677 per annum).

Carolyn will continue to qualify for a full Newstart Allowance of $428.70* per fortnight ($11,146 per annum). This results in combined social security benefits of $25,438.40 per annum.  Further, while it is not likely to be applicable in this scenario, depending on their income position for the entire financial year, Reg may also be eligible for a spouse contribution tax offset of up to $540.

^ However, Flood levy of approximately $1,093 will apply.

* Rates and thresholds used are current to 31 December 2011. Rates include Pension Supplement for Reg.

Case Study

Sam (age 56) is single, owns his home, and has been unemployed for three months. His assets consist of the following:

  • $15,000 in the bank
  • $180,000 in managed investments (subject to deeming under the income test)
  • $75,000 in superannuation

As his assets (excluding superannuation) exceed the $186,750* asset test threshold, Sam is not eligible to receive any Newstart Allowance. Sam would like to receive some Newstart Allowance to help meet his living expenses and he is not averse to increasing his superannuation balance. He accepts his financial planner’s advice to make a $145,000 non-concessional contribution (using his managed investments) into his superannuation fund.  Following this contribution, the level of assets counted under the assets test is reduced to $50,000. The level of deemed income (from the managed investments) under the income test is also significantly reduced.

Sam is now able to receive the full amount of Newstart Allowance of $486.80 per fortnight*

or $12,657 per annum.

* Rates used are current to 31 December 2011.

Foundation Planning Pty Ltd

ABN 93 150 110 517

Authorised Representatives of AMP Financial Planning Pty Limited

Ph: 07 5631 4343 Fax: 07 5522 8836 Mob: 0403 844 071

PO Box 35, Mudgeeraba, QLD 4213

Posted in Centrelink, Investments, Retirement, Super