- October 2, 2023
- Posted by: legaleseblogger
- Category: Related News
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Background: Mother’s Financial Situation
The mother in question is 67 years old and is no longer employed, thus lacking any superannuation savings. She relies solely on a disability pension to meet her day-to-day expenses and needs. It’s important to note that she experiences highly unpredictable mental health issues. Fortunately, she resides in an apartment, which has been fully paid off. However, the apartment is owned by a trust that takes care of the strata fees.
Inheritance and Trust Setup
Recently, the mother received a significant inheritance of $130,000. The source of this inheritance is intended to be held within a trust. This trust has been established with the involvement of myself and my siblings as trustees. Currently, the inherited funds are held in a savings account with NAB, but the 1% interest rate it accrues is hardly beneficial for long-term financial growth.
Challenges and Objectives
Given the circumstances, it is crucial to consider the best possible investment strategy for these funds, ensuring they will last throughout the remainder of her life. Since her day-to-day expenses are already covered by the pension, the intention is to maintain a manageable emergency fund for any unexpected future needs.
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Remember, making the inheritance last a lifetime requires careful planning and astute investment choices. With the assistance of AI Legalese Decoder, you can confidently explore options, optimize returns, and protect your mother’s financial interests well into the future.
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****** just grabbed a
Well if her day to day expenses are covered then just put it into a better savings account?
If you are keen to expose it to some risk then an index fund?
Calculate the total annual cost of living plus a small buffer for emergent costs. Park that in an easily accessible account. Then the remainder, park it in a high interest account for a year. You don’t need to treat the $130k as a single unit if savings. Structure it so the unused funds will earn more interest rather than just sitting in an account.
Ubank is owned by nab. Gets 5%. Thats $500 a month on $130k.
The best advice is to never give her the full amount of money but a month by month budget to spend.
My mum had 300K inheritance and she blew it all in 4 months. Yes. crazy.
Now she gets $1500 from my grandma (her mum) and she spends it all by the end of the month
I’d say just find a better savings account, perhaps around 5%, or a few term deposits maturing at different times. Document your decision as trustee as “The trustees considered the circumstances and decided to minimise risk by retaining the funds at extremely low risk, with interest income to be used for current spending and capital retained for health-related emergency spending” and then both signing those minutes. “Health-related” can cover heaps of things all the way from a bad power bill unaffordable otherwise, to specialist costs, mobility chair, massage chair, or pretty much anything that helps her be comfortable. Then decide as you go what makes sense, with anything major (say, more than $5K) also documented.
Put it in a high interest account. At 5% that amount will top her up with an extra $250 a fortnight and not affect the pension
Stick it in Macquarie where the higher interest has no strings. Draw less than the interest and it will last forever.
Hey OP, check to see if the trust is a Special Disability Trust (SDT).
Apologies for not answering your question, but It would be worth exploring whether she’s eligible for an aged care assessment service to help her out at home. She can get some free services like meals, cleaning, gardening etc. that she might struggle with at home
No advice, just take care, and good on you. SheÔÇÖs lucky to have you, legend.
Is the trust a “disability trust”?
https://colemangreig.com.au/insights/plain-english-guides/special-disability-trusts/
If yes, then you maximise income without impacting her disability pension.
Suggestion: You probably want to keep say 30K in cash for emergency in a 5% HISA. See HISA list here to pick one that works for the circumstances. https://docs.google.com/spreadsheets/d/145iM6uuFS9m-Rul65–eFJQq_Au7Z_BA4_CwkYwu2DI/edit#gid=271791020
Plus, If you are OK with some risk, then you might consider to buy a cheap ETF such as A200 (ASX top 200 companies) via a low cost broker. This will give distributions at about 4%, plus some capital growth to keep up with inflation, plus some franking credit refunds.
If it is NOT a disability trust then pension assets and income test limits likely apply to her pension.
See limits here:
https://www.servicesaustralia.gov.au/who-can-get-age-pension?context=22526
If the 130K is only asset outside PPOR then it will be well under the asset limit.
Assets limit full pension: Home owner = $301,750 or non-home owner = $543,750. So, depending on how the unit is classified in this case for her given it is owned by a trust. There are higher limits for part-pension cut out.
However, you probably need to be mindful of the pension income test.
Income limits for full pension = Up to $204 per fortnight. Similarly a higher limit for part pension cut out.
If the 130K in a 5% HISA then fortnightly interest is $249 ($6,500 per year). The capital value of the money will of course decline in the face of inflation over time.
At present the interest income will impact the pension very slightly, but still better off overall by 60 cents in the dollar (for each $1 over they cut the pension by 40cents).
Others have suggested annuities. But do take care to buy the correct one. perhaps some advice from a retirement planning expert if thinking about that because different products are differently classified. See here for example https://firstfinancial.com.au/using-annuity-maximise-age-pension-entitlements/
Best wishes to your family and mum.
Set up a superannuation account, put in the full amount as a non-concessional contribution then switch it to a pension account. The superfund will then pay her a pension from that account, you can specify the period of payment. As it’s in a pension account, any returns will also be 100% tax free.
For now you can stick it into a ~5% HISA whilst rates are high as others are suggesting, but this is bad advice for the long run. Eventually rates will be back to 0% and the returns will be dismal. It needs to be invested to maintain its value, whilst also paying out returns. By having it in the bank, in the long run, you’re simply just making other people rich.
Long-term government bonds are also an attractive investment option currently.
Do you have a mortgage? Can you park it in your offset and pay her an income yourself from the savings on your mortgage? My parents and I had this arrangement for a while. You have to maintain your usual mortgage payment, plus the payment to your mother, but if you want to pay extra on your mortgage anyway it works. You should have a couple of conversations about the rate that is fair with all parties concerned, and document it. It could go sideways very easily, so there would have to be a high level of trust and transparency. Set it up so that the maths is easy too, we did not pay back any principal until the end, calculated the % interest amount, divided by 12 and paid that every month.
The interest rate on my mortgage at the time was 6% and the best my parents could get at the bank was 2% and they would have to pay tax on that so we split the difference and paid them 4%. I believe payments between family members are not taxable, but check with your accountant.
I’d talk to an accountant rather than get advice of reddit, but maybe that’s just me. Trust laws can be a bit tricky at the best of times let alone when government payments are involved.
ING Savings Maximiser is at 5.5% up to 100k
How is she still getting the pension if she received that inheritance?
SnP shares
Term deposit, paid monthly?
You could buy her an annuity. These are pension friendly (only 60% of the amount counted to pension asset tests) and give a regular (inflation linked) income stream.
If she doesn’t need access to the funds. Look into an annuity that will pay her an income each month or so for her lifetime. With indexation that will slowly increase each year as well
Buy a fixed term annuity until her statistical life expectancy with no residual value.
Don’t spend it just yet. You’ll need to for when she goes into Aged Care. Lolz
I’ve just been down this road with my mum.