Reverse Mortgages and Gifting
Article By Paul Dwyer
The Bank of Mum and Dad has become a major source of funding for younger home-owners, either wanting to get into home ownership, or having financial assistance in meeting increased home loan repayments.
When Mum and Dad reach retirement age, often their home becomes their greatest asset and Reverse Mortgage borrowing may be the only means to provide assistance.
Whilst assisting children with a form of early inheritance is a noble act, care should be taken to ensure the following considerations.
When there are other siblings who will be future beneficiaries, a legal agreement or a revised Will should be prepared. This would indicate the gifting provided and any conditions, so that no beneficiary can be seen as been unfairly considered. A discussion with those other beneficiaries should be conducted as to the gifting decision.
It is important to consider potential needs that the elderly parents may incur in later years and that the amount of gifting shall not prevent them from being able to fund those needs.
Finally, consideration should be given to Centrelink implications for full or part pensioners. Gifting is regarded by Centrelink as a deprived asset and included in both income and asset calculations for a period of 5 years.
From 1st July 2023, a single person can have $301,750 in assessable assets, whilst a couple can have $451,500, before any reduction in pension payments.
From an assessable income perspective, the first $60,400 is assessed as receiving .25% return ($100,200 for a couple). Thereafter, income is deemed at 2.25%. These rates are frozen until 30th June 2024.
Government is yet to decide what to do with deeming next year. The last time the RBA cash rate was around 4.1% (4.25% April 2012), the deeming rates were 3.0% for the lower threshold and 4.5% for the upper threshold.
For any pension recipients thinking of gifting to assist family members, consideration should be given to the potential increases and pension ramifications.
When considering a Reverse Mortgage with a gifting purpose, also consult with a Reverse Mortgage broker with Centrelink knowledge.
Paul Dwyer has specialised in reverse mortgage and aged care lending for the past 20 years. The information is at 27th June 2023, general in nature, and does not take into account individual circumstances
