Richard Atkinson demystifies the mechanics and costs of using trusts to quarantine assets for retired/retiring clients who want to better manage their Centrelink Income Test outcomes.
1. Task
CentreLink deeming of financial assets tests becomes tougher for retirees seeking access to Government benefits from 1 January 2015… this will affect more people seeking lower costs for aged care accommodation or simple seeking to stay qualified for Seniors Health Card
2. Solution
To reduce the asset base the income it is producing so that the assessable pool is smaller
3. Tool
Use a bare trust to hold the assets within an Austock life insurance bond
4. Legal costs in establishing the trust?
$100
Holding an insurance bond in a private trust is a valuable strategy for managing income testing of financial assets. This works because trusts are assessed for income under social security legislation on ‘taxable’ income and insurance bonds do not generate ‘taxable’ income.
One downside of this strategy has been until now, that the client has to deal with a solicitor. This takes time and adds some costs, plus introduces a third party into the client relationship.
To make this simpler Austock has released the Bonds Custodian Trust (BCT). This a streamlined mechanism to create a ‘Bare’ holding trust at the same time a bond is being issued. This is all done for a $100 flat fee and there is no stamp duty or ongoing costs. No Tax File Number or bank account are needed to operate the trust. The client has total control over the bond and can draw lumps sums or annuity streams if they wish.
Austock’s Richard Atkinson sees great potential uses for the BCT, such as the current Age Care Income Tested Fees, future (post 1 July 2014) residential Aged Care and Home Care income testing reduction strategies and the future deeming of Account Based Pensions (post 1 Jan 2015).
As advisers are being involved more in estate planning outcomes for clients because they are raised in the SOA and must be actioned, this structure lets advisers produce efficient strategies for clients. The efficiency remains even when winding up any estate that includes an insurance bond as all proceeds are tax free as they are paid directly to nominated beneficiaries.
Placing a bond in a trust should not cost a fortune and this article sought to show how adviser could enable estate planning outcomes without the big legal bills. Advisers are looking for new income frontiers with their clients: practical estate planning tools are now within their reach.
Richard Atkinson
Head of IFA Product and Relationships
Austock Life Limited
03 8601 2095
0417 541 897
RAtkinson@austock.com