Estate Planning, Superannuation

Downsizer, aged-care strategy go hand-in-hand

SMSF advisers advising clients on downsizer contributions for estate planning purposes should consider the client’s full circumstances and the interaction with aged care, according to Aged Care Steps.

Aged Care Steps director Assyat David said advisers need to understand the client’s full circumstances and how the downsizer contributions would affect their aged-care plans, Centrelink benefits and taxation to meet the best interests duty.

“Further changes to aged-care legislation and the impact on Centrelink/DVA (Department of Veterans Affairs) entitlements can be expected as the government deals with the increasing need for care by older Australians and the rising cost of subsidising care services,” David said.

As an example of a couple, if the older spouse moves into aged care, the younger spouse may nominate to downsize their home and contribute the $300,000 into their SMSF. Alternatively, they may wish to pass their super funds on to their nominated beneficiary when they move into aged care and bypass the estate.

David also told selfmanagedsuper SMSF trustees are the decision-makers if there is no nominated beneficiary elected, in which case the remaining trustees will then make a decision as to who receives the super funds.

“I think taking into account the likely decision and the risk of the decision being put on the main trustee of the super fund will be one of the considerations from an SMSF perspective,” she said.

Advisers will also need to consider how SMSF trustees and members selling their homes will affect their Centrelink entitlements since they will be considered a non-homeowner.

Furthermore, any excess funds that remain after paying the refundable accommodation deposit for the aged-care facility will have to be invested somewhere, whether inside or outside the SMSF, and that will therefore be considered assessable income and assets.

“And of course if they have money sitting outside of super or within super, there’s also consideration there are excess funds there, and that will be taxed and therefore they need to take into account how those funds are going to be taxed and what the effective tax rates may be,” David said, adding there may be other ways to treat the tax.

“The assessments and the calculations of the strategies need to take into account the broader considerations that affect their cash flows, such as Centrelink entitlements, aged-care fees they will be entitled to pay and also the actual investments they’ve got to draw on.”

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