65435136Q. My elderly parents (who are on full aged pension) own their 2 bedroom unit and my brother has always lived with them. He invested $20,000 of his own money when they bought the property years ago but his name is not on the title deed. As the unit is no longer viable for them to live in, they want to sell and buy a villa but want to put it in my brother’s name. Will that affect their Centrelink pension?

A. Legally your parents have full title to their property. Regardless of the financial support provided by your brother at the time of purchase, he has no equity interest in the property.

His interest in the property could have been noted by way of a share of ownership in the property on the deed. Alternatively, he could have lent the money to your parents and had his financial contribution recognised as a registered mortgage against the property or a formal loan agreement between your parents and your brother.

In the absence of a loan agreement existing, your brother has essentially gifted the funds to your parents by way of a contribution to purchasing the property that they own.

Your parents have every right to sell the unit as they own the asset. If they buy the Villa in your brother’s name and they retain no title to the property, they are essentially gifting the property to your brother and transferring all title and control to your brother.

In terms of Centrelink and the Age Pension, they are entitled to gift assets. However the limit is $10,000 per Financial Year but limited to $30,000 every 5 years. If they gift an amount or an asset in excess of this amount, the gift will be assessed as a deprived asset for 5 years from the date of the gift. The value of the property would be treated as a gifted asset for 5 years. So if they buy the property in his name in July 2015, the value will count as a deprived asset until July 2020.

Without knowing your parents complete circumstances, it is impossible to estimate the total impact to their Age Pension benefits. Subject to the value of the Villa they intend to purchase, their Age Pension entitlements may be severely reduced.

If they sell their home and gift the value of the asset to your brother, the proceeds from the sale of the 2 bedroom unit will be counted by Centrelink for Assets test purposes in determining their Age Pension. Currently Non-homeowner couples have their Age Pension benefit reduced by $1.50 each per fortnight for every $1,000 above assessable assets of $448,000. The Pension reduction is referred to as the taper rate. From 1 January 2017, the taper rate increases from $1.50 per $1,000 to $3 per $1,000.

I am not sure why they would want to buy the Villa in your brother’s name. If they purchased the Villa in their own names as their home, the value of the property would not be assessed for Assets Test purposes.

If they wish to recognize his contribution to the original purchase of the unit, there are other ways to achieve this outcome.

The key will be to get quality legal and Financial Planning advice to ensure they appreciate the legal and financial consequences of the decisions that they make.