For adviser use only. Housing & Government Benefit Opportunities covering for 3 Generations of Jackson s

Transcription

1 For adviser use only Housing & Government Benefit Opportunities covering for 3 Generations of Jackson s

2 General advice warning This presentation has been prepared by IOOF Investment Management Limited (IIML), ABN , AFS Licence No and Australian Executor Trustees Limited (AET) ABN , AFSL IIML and AET are members of the IOOF group of companies consisting of IOOF Holdings Ltd, ABN , and its related bodies corporate. IIML's contact details can be found on and AET s contact details can be found on This presentation is intended for adviser use only and is not to be distributed to retail clients without the consent of IOOF. Information contained within this presentation has been prepared as general advice only as it does not take into account any person s investment objectives, financial situation or particular needs. The presentation is not intended to represent or be a substitute for specific financial, taxation or investment advice and should not be relied on as such. Before deciding whether to acquire or to continue to hold any investment mentioned in this presentation, a Product Disclosure Statement (PDS) should be obtained and considered. Past Performance is not a reliable indicator of future performance. All assumptions and examples are based on current laws (as at 20 March 2012) and the continuance of these laws and IOOF s interpretation of them. IOOF does not undertake to notify its recipients of changes in the law or its interpretation. All examples are for illustration purposes only and may not apply to your circumstances. 2

3 Learning Outcomes: Understanding Mother Jackson s aged care requirements & impact from Inheritance What should Jim & Maggie do and can they access Social Security benefits Identifying requirements on Government Housing & Disability Support Pension for Robert and effects from Future Inheritance 3

4 Mother Jackson - Aged care issues Retain Maximum Centrelink age pension Minimising aged care costs Protect assets family home & Term Deposit Estate planning Inheritance 4

5 Hostel fees Mother Jackson ` Basic daily fee Income tested fee Accommodation bond This is set according to a client s pensioner status and covers everyday costs. It may vary according to the particular hostel chosen, but cannot be above the maximum amount set for government-approved hostels which is 84 per cent basic single age pension at $41.71 pd Are applied to part-pensioners and non-pensioners and is based upon their income assessment from Social Security From 20 September 2009, more transitional categories and complexity exists. Where the individual s assets exceed $40,500, the hostel may require this bond to be paid. Payment options for bonds: Can be paid as either: Lump sum Periodic payment: maximum interest of 8.37% pa can be charged on outstanding bond amount (excludes retention amount) Combination of both 5 * As at 20 March 2012

6 Income tested fee - Hostel/Nursing home Residents may be asked to pay an income tested fee and is not charged if fee is less than $1 per day. The formula for the income tested fee = (Total assessable income - income free area) x (5/12) Where: Income free area is $ p.f. or $22, p.a. for standard resident total assessable income includes: Income as calculated by Centrelink for the income test and Pension* income from Centrelink Maximum income tested fee per day Full pensioners Part pensioners and self-funded retirees Nil Up to $

7 Age Pension Post Inheritance Assets Home $300,000 Term Deposit $100,000 Inheritance $250,000 Total Assessed Assets $350,000 Deemed Income: $15,081 or $580 p.f. DSS Assessed Test: Assets test Reduction Rate: $ p.f or $6, p.a. Eligible Age Pension: $ or $13,276 p.a.* Note: Full age pension of $19,643 p.a. pre inheritance. 7 * Includes Pension Supplement Payment

8 The family home - Centrelink perspective Means test-exempt: Indefinite if spouse or dependent children continue to live there. A two-year period from date the last member of the couple leaves the home. Indefinite exemption applies if: Low level care / Hostel: For as long as paying a periodic payment for an accommodation bond AND renting home out High level care / Nursing Home: For as long as paying accommodation charge AND renting home out Note: Rent is NOT assessed as income under the indefinite exemption. The home for a single person is usually NOT means test exempt. At the end of the standard 2 year exemption period, the resident becomes a non-home owner and value of home counts as an asset if the indefinite exemption does not apply. 8

9 Mother Jackson - Case study comparison Pre Aged Care Move Option 1 - keep home not rented Option 2 - sell home and bank proceeds Option 3 - keep home rented Age pension $13,276 $18,553 $11,802 $18,328 Annual aged care fees payable (A) N/A $15,678 $18,437 $16,609 Annual income (B) $17,500 $26,053 $34,302 $41,928 Net Income (A) (B) N/A $10,375 $15,866 $25,319 Recommended strategy

10 Jim & Maggie Jackson Estate Issues & Opportunities Strategy Consideration: Sell full farm (Total Value $2,400,000 + $992,000) to Brian under a 15 year payment plan. Provides protect to estate as a debt. Life, TPD and Trauma cover required on Brian to cover debt to protect estate. Brian to then restructure ownership of farm assets under trust. Requirement to have Robert as a beneficiary entitled to only a fixed income distribution of $10,000 indexed for the life of the trust. Assuming continue profitability and require two full time employee - profit reduced to $200,000. Therefore Brian receives $190,000. Utilise 15 year savings plan to repay farm debt. 10

11 Jim & Maggie Jackson Cash Flow Upon retirement, will not be eligible for the age pension mainly due to farm value and no CSHC given income from partnership and financial assets in farm loan. Contribute Managed funds of $90,000 into Maggie s account. ($10k required to cover initial retirement capital) Establish account based pensions to cover income requirements for Jim and Maggie requirement of $50,000 p.a. (Robert s $10,000 covered via Farm Trust). If Jim s mother passes and he receives inheritance of $300k, consider working on farm to utilise contribution to super each of $150,

12 Robert Jackson Maximise Government Benefits Objectives Retain Disability Support Pension & Access to Public Housing Jim & Maggie to continue to have ability to provide Robert $10,000 p.a. in income Suggested Recommendations Continue to provide $10,000 p.a. to Robert via fixed income distributions from trust Establish a Special Disability Trust for Robert Jim & Maggie to gift Brian to provide funding in line with farm payment plan as part of a long term business succession plan. Jim & Maggie utilise funds to gift capital to a Special Disability Trust Jim utilises inheritance from mother to establish. 12

13 Special Disability Trust (SDT) Principal beneficiary is the only attributed stakeholder. Assets and income from trust exempt up to limit Asset value limit from 1 July 2011 is $578,500. Primary residence is an exempt asset and not included in assessable assets of the trust. Trustee Requirements Trustee can be either in individual or corporation. Must be at least 2 trustees, except if nominate a professional trustee company (E.g. AET Solutions) 13

14 Special Disability Trust (SDT) Income Restrictions Income Requirements: Funds are used for accommodation Funds used to pay for arms-length employees that are providing care services. Discretionary spending for beneficiary From 1 January 2011 Discretionary spend capital was set at $10,000 p.a. Now from 1/7/2011 indexed to $10,250 Includes (examples): Food Household items (clothing and footwear, insurances, toiletries, etc) Vehicle maintenance and running costs Recreation and leisure activities 14

15 Special Disability Trust (SDT) Treatment of Gift from Jim & Maggie Gifting concessions for SDT are available for immediate family members that are receiving a social security pension and have reached age pension age. Allows Jim & Maggie to contribute up to the SDT limit (currently $578,500) and not be subject to social security deprivation rules. 15

16 Special Disability Trust (SDT) Treatment of Gift from Jim & Maggie Suggested Strategy Establishment of SDT will be treated as an exempt gift for Jim & Maggie. Jim & Maggie could pre-gift assets to Robert e.g. house if SDT will cancel this public housing eligibility. Jim & Maggie establish an equalisation clause in the Wills regarding the pre-gift of capital to Robert. 16

17 Alternative Strategy Issue with Public Housing & SDT Do not establish SDT pre death. Establish testamentary trust for children with Robert only a fixed indexed income beneficiary. Structure the trust that in the evident of other beneficiaries pre decease Robert then establish SDT for him. Public housing legislation was not clear regarding SDTs e.g. whether asset would be exempt or not. Is this appropriate and will this provide sufficient future requirements 17 for Robert?

18 For adviser use only Questions

19 Disclaimer The information contained in this presentation is given in good faith and is believed to be correct at the time of publication, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omission (including responsibility to any person by reason of negligence) is accepted by IOOF Investment Management Limited (IIML), its officers, employees, directors and agents. IIML and AET are issuers of financial products, Responsible Entities of managed investment schemes, Trustees of superannuation entities and Operators of Investor Directed Portfolio Services. IIML is the trustee of the IOOF Portfolio Service Superannuation Fund (ABN ). AET is the Responsible Entity of IDPS like schemes, the Trustee of a number of Small APRA Funds and the provider of a number of small and self managed superannuation fund solutions and estate planning services. IOOF Ltd, ABN , AFS Licence No , another company in the IOOF Group, is the issuer of IOOF WealthBuilder (WealthBuilder). Where a client proceeds with an investment in an IOOF Group product, IOOF may receive remuneration via fees for that product. If a client seeks personal financial advice from a financial adviser, the adviser may receive remuneration via commission payments. Details of remuneration will be outlined within a Statement of Advice where personal advice is provided, or can be provided upon request 19

20 Appendix 20

21 Mother Jackson - Option 1: Retain house, pay bond and don t rent Mother Jackson, aged 92 and single is currently receiving a full age pension (Inheritance to reduce), needs to move into a hostel and has been assessed to pay a bond of $200,000. Outcome Income Tested Fee: $1.24 p.d or $ p.a Small reduction on age pension Assets $150,000 Deemed Income: $6,081 p.a. or $ p.f. DSS Assessed Test: Income test Reduction Rate: $41.96 p.f. Eligible Age Pension $ p.f.* or $18, p.a 21 * Includes Pension Supplement Payment

22 Mother Jackson - Option 1: Retain house, pay bond and don t rent Aged care fees Per day Per Annum Basic daily fee $41.71 $15,224 Income-tested fee $1.24 $454 Total fees $42.95 $15,678 Age pension $18,553 Investment income* $7,500 Annual income $26,053 Cash flow outcome (positive) $10,375 * Term deposit return at 5%

23 Mother Jackson - Option 2: Sell house and pay bond Invest the proceeds within a term deposit Accommodation bond is an exempt asset Assessed Income Tested Fee: $9.79 She will lose more age pension Assets $450,000 Deemed Income: $19,581 p.a. or $ p.f. DSS Assessed Test: Income test Reduction Rate: $ p.f. Eligible Age Pension $ p.f.* or $11, p.a. * Includes Pension Supplement Payment 23

24 Mother Jackson - Option 2: Sell house and pay bond Aged care fees Per day Per Annum Basic daily fee* $40.72 $14,862 Income-tested fee $9.79 $3,574 Total fees $50.51 $18,437 Age pension $11,802 Investment income* $22,500 Annual income $34,302 Cash flow outcome (positive) $15,866 * Applies to people who entered care on or after 20 September 2009 who did not get benefit of an age pension increase. This includes self funded retirees and part pensioners with non pension income equal to or more than $10, if single. ** Term deposit return at 5%

25 Mother Jackson / Recommended Strategy - Option 3: Retains home, rents it and pays part of the bond Utilise cash to pay lump sum bond of $190,000 and remaining $10k paid via a periodic payment Retain home and rent out for $300 (net) per week. Outcome Income Tested Fee: $1.50 p.d or $ p.a Interest on outstanding bond: $837 p.a (ie $10,000 x 8.37%) Small reduction on age pension Assets $160,000 Deemed Income: $6,531 p.a. or $ p.f. DSS Assessed Test: Income test Reduction Rate: $50.61 p.f. Eligible Age Pension $ p.f.* or $18, p.a 25 * Includes Pension Supplement Payment

26 Mother Jackson / Recommended Strategy - Option 3: Retains home, rents it and pays part of the bond Aged care fees Per day Per Annum Basic daily fee $41.71 $15, Income-tested fee $1.50 $548 Interest on outstanding bond $2.29 $837 Total fees $45.50 $16,609 Age pension $18,328 Investment income* $23,600 Annual income $41,928 Cash flow outcome (positive) $25,319 * Term deposit return at 5% and rental income