Supporting Elderly Relatives

It’s common for borrowing or transferring of assets to occur within a family. It could be parents helping their children to buy their first home or children providing financial support to their elderly parents. When this occurs, it may be worthwhile for the party providing the funds to formalise the transaction as a loan arrangement. This could avoid potential disputes down the track i.e. when the children go through a divorce or when there are disputes about inheritance.The most important starting point for people with elderly relatives is putting an Enduring Power of Attorney agreement in place while the elderly person is still of sound mind. An Enduring Power of Attorney enables a person to appoint someone they trust to make financial and property decisions on their behalf.If you wait until the person has lost legal capacity i.e. dementia, you will not have access to the person’s financial assets to pay for medical treatments and other expenses. You may have to ask a court or Guardianship Tribunal to appoint you as a guardian before you can access funds – a process that can be frustrating and time consuming. It’s possible to take an early inheritance in order to help pay for their care but such a transfer may have capital gains tax (CGT) implications for the elderly person. While the usual after-death transfer of assets still causes a CGT event, the inheritor of those assets usually doesn’t have to pay CGT (if any) until they eventually dispose of the asset.If the elderly person is receiving the Age Pension, gifting an asset worth more than $10,000 to a family member means the amount in excess of $10,000 will continue to be assessed by Centrelink as their asset, and also deemed as income. This may adversely affect the elderly person’s Age Pension entitlement. There are exceptions, though. If an elderly person decides to move in with their children, as long as it is to establish a right to accommodation for life, they can transfer their principal residence in which they previously lived into their children’s name. This is known as a ‘Granny Flat Right’ and it does not affect the elderly person’s pension entitlement. Because it’s the transfer of a principal residence, it generally does not create any CGT liability for the elderly person.Sometimes the physical and mental condition of an elderly person can deteriorate to the point that they need to enter an aged care facility. The rules around this are complicated and could have significant financial implications, and could happen at a highly emotional time. It’s therefore vital to consult your independent financial planner if anything more than small cash transfers are being made.