Keep Centrelink happy when you leave money for your kids

We read your recent excellent article about wills and ways to ensure the survivor keeps the single pension when one partner dies. The investments we have that would pass to the children are mainly bank accounts in joint names. If we moved these to single ownership would the half share of these accounts technically owned by the surviving spouse be classed as a gift and therefore invoke the Centrelink deprivation rules and defeat the purpose of the exercise?

A couple can move assets from one to the other at any stage without being caught under the Centrelink gifting provisions. Therefore, if all your financial assets are in bank accounts in joint names, the simple strategy would be to move the monies into individual names before you die. Then you would need to change your will to provide for certain specific bank accounts to go to nominated beneficiaries upon your death, and not to each other.

There have been recent references to the withdrawal of the taxable component of super prior to death to avoid the non-dependent recipient having to pay tax on the amount. It was my understanding that any withdrawal had to be apportioned between the taxable (if any) and non-taxable (if any) components of the account balance. For example, if there was a 50/50 split between taxable and non-taxable and $85,000 was to be withdrawn, $42,500 would be required to be withdrawn from each portion. Is my understanding correct?

Yes, your understanding is correct. It is not possible to specify individual components when making withdrawals from super. Just keep in mind that the non-taxable component does not grow - the earnings on it form part of the taxable component. Therefore, as time passes the taxable component should become an increasing percentage of the total balance. If you are eligible to do so you can reduce the taxable component by making withdrawals from super, and re-contributing them as non-concessional contributions.

I am nearly 67 and still work. I have $347,000 in a super account and $250,000 in a pension account.To avoid death taxes, it was suggested I take $100,000 out of the super and start another super fund as this then would be tax free. Then do the same in the following year, if I was still working. But then I have fees for three accounts. Can I take the $100,000 out of the super account I now have and just put it back into it. Would that work?

Yes, you are at an age where you can access your super tax-free when you wish, and because you are working, and have less than $1.6 million in super, you can make non-concessional contributions of up to $100,000 a year until you stop work or turn 75. A pension fund cannot accept contributions so the simple strategy is to withdraw it from either of your two funds, and then re-contribute it to the super fund.

We are a couple with two young children. My husband earns $95,000 a year and I work for myself earning around $35,000 a year. Our home is valued around $850,000 and we have a mortgage of $340,000. We are wondering what the next best step for us investment wise - should we start paying extra money into our super, or would we be better off making extra repayments on our home loan? What is a good investment to make for our children's' education - we would like to invest $1000 each year on their behalf.

You have not given your ages but it would appear that you are relatively young. Therefore, I suggest you focus all your efforts on substantially reducing your housing loan. This will give you a return equivalent to around 5 per cent after tax without risk, and you will not lose access to your money as you would do if you make extra contributions to super. It might be worthwhile having a goal to have your house paid off by the time the children are 18. You could use the $1000 a year you mention as part of this plan. Then all the money that would normally be needed for house repayments will be available for their education.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions.

This story Keep Centrelink happy when you leave money for your kids first appeared on The Sydney Morning Herald.