Hi all,
I need to speak with an expert in Melbourne on Centrelink pensions, so if anybody can recommend someone I would appreciate it.
Background – person in their 80’s has a life tenancy in (deceased) parents’ house so can live rent free, but has no income. Can’t get a pension because they actually own a large block of land (pre-CGT, bought 60 years ago) that is probably $900K value, rural conservation zone.
Person doesn’t want to sell because will then have $900k cash and cannot cope with that amount of cash or worry let alone go through the transaction – (I know what you’re thinking but you have to remember they are in their 80’s). Also wants to leave the block to 10 nieces and nephews, but can’t pay the rates and land tax etc.
So – I need to discuss the pension rules with someone who is an expert. I am thinking that the 10 nieces and nephews might be able to buy the land from the person at market value and take the title but have a loan or layby agreement of say $100 per week for xx years, and the loan will be extinguished when the person dies (as they will inherit it anyway).
Then the 10 nieces and nephews might be able to lease it out to cover the weeky payments and land tax, rates etc.
Originally I was thinking since it is return of capital hopefully the weekly payment wont count as income, and they no longer own the land so they no longer have the asset so they might get a pension. But just to make sure I kow the rules and eligibility I need to speak to an expert.
Trouble is for the 10 nieces and nephews they have to come up with stamp duty of about $40K and ensure they can lease the land for enough to cover the weekly payment and outgoings. No point on-selling the land because then the loan to the person is paid out and they would have the “pile of cash” problem.
The other twist is the land has sat around for 60 years and has a rural conservation zone with an Environmental Significance Overlay (whatever that is) as apparently there are some unique grasses and flowers on the property.
Any comments, ideas or suggestions welcome, and the name of an expert pensions person.
Cheers
Skippygirl. [biggrin]If it is life tenancy, then i beleive, they are not the owner of the property. The property is owned by a trust and they are a beneficiary and have no right to sell or mortgage the property.
Apparently leaving a life tenancy was common many yers ago, but doesn’t happen these days – or shouldn’t. Courts are aware of the hardships that life tenancy can cause and can set aside wills.
Terryw
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Another point.
You should talk to someone at Centrelink itself. They have ‘financial advisors’ there who can help.
Also, for a recent legal case at the NSW supreme Court involving a life tenancy see Phillips v Hunt [2005] NSWSC 978:
http://caselaw.lawlink.nsw.gov.au/isysquery/irl80b9/1/docTerryw
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Thanks so much Terry – I guess the best place to start would be Centrelink itself to learn the rules.
The problem is not the life tenancy in the house – that’s oK, and lucky for him in that he can live rent free.
The problem is the large block of (now valuable )land he owns, which he bought 60 years ago intending to become a hobby farmer but family circumstances meant he could never move there and he never got to farm it.
It was a rural block very cheap 60 years ago but now sits on the fringe of suburbia and is now valuable so it way exceeds the asset test for a pension from Centrelink. He can’t bring himself to sell it (and couldn’t deal with it emotionally) but has no income and the rates and land tax are now very high.
This is where I am trying to think of a creative solution that helps him, helps his 10 nieces and nephews help him, etc
Cheers
SkippygirlG’day Skippygirl,
My suggestion would be to harvest enough money from the equity to live on and pay the expenses – forget the pension!!
A financial institution would jump at the chance to extend an interest only loan I’m sure for say $50,000 per annum for the Octogenerian to live on. Remember that this would equate to an income of $90,000+ because no tax is payable on a loan. The interest is payed out of the $50,000. Granted that each year the amount owed rises by $50,000 or so but after say 10 years the amount owed would be possibly $600,000 allowing for inflation but the property should have doubled in value to approximately $1.8m so the equity in the place would still be $1.2m. Do you get my drift?
This scenario eliminates the need to sell and with it all the associated costs. In fact I would suggest never never sell. Just harvest the equity as I have suggested above. Even when he passes on and the property is willed to the nieces and nephews I would be very reticent to sell. Just keep harvesting the equity.
This is not my idea btw. I’m not a lateral thinker!!. Check out http://www.theinvestorsclub.com.au for more information on this method. I have no affiliation with them but just think it may be a solution to the problem you raise.
Let us know what is decided in the fullness of time.Cheers and good luck,
PudHi
Sorry Skippy, I missed that bit about the land.
I think Pud’s idea is great. Get the person just to borrow against the land, that way they get the best of both worlds – ie money now and get to keep the appreciating asset.
Terryw
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Parramatta
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Thanks guys!!! I knew someone would have the creative answer.
Pud I’l check out the link.
Terry do you know what sort of loan product Pud is referring to i.e. an IO loan to someone in their 80’s with no income, secured against vacant land, no repayments (capitalising the interest I guess)?
When he passes away can the 10 nieces and nephews assume or rollover the loan to them as the beneficiaries?
Off to do more research but if you did have any info that would be great.
Thanks again
Skippygirl [cap]
Hi Skippygirl
There are various sorts of Reverse Mortgages out there. Most will lend the person a certain amount based on their age. Interest can be capitalised until they die. Then the loan is paid out of the proceeds of the estate. The loans cannot be assumed. Bluestone, MAcquarie, St George and a few others other these sorts of loans – they are becoming more popular with the lenders now.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
hi there skippygirl
you can forget Centrelink. Puds idea is teh way to go.
I have had enough trouble with Centrelink and they bend no rules cos they are bound by govt legislation. And your friend is way over the asset level.
A few yrs ago I used the equity in my house to purchase two investment houses. Before I did this i checked with Centrelink over the phone…’oh no madam, it wont affect your benefit cos your mortgages outweigh the rent you will receive”.
I now owe $11700 from benefits that centrelink NOW say was unlawfully received. I dunno how they expected me to eat during this time.
Anyway I have refinanced the IPs so they are not beholden to my PPOR. Centrelink are happy and i can get my parenting payment back but they deduct $161/fn to pay back my debt.
Makes no sense to me.But if you do ring Centrelink, ring only once cos if you ring 3 times you’ll get 3 different answers. [confused2]
GoodluckSkippygirl,
Can an income be found from the land? Is it a rural property which could be leased to a farmer for agistment purposes or some such thing. Fencing off the sensitive areas first of course. Or maybe it could be rented out for storage or a holding area for machinery. There are all sorts of possibilities. This would then take care of the interest cost hopefully, thereby not using as much of the equity.Cheers,
PudYes we have to research what the land can be leased for. Good ide to fence off the sensitive areas first.
Thanks again all.skippygirl
You can Rent the land out for horses just need to fence it off in blocks and you can rent it out for $20 a horse pew week there are plenty of people looking for good land to put horses on. Most people that own horses have about 2+ so if you can find 20 horses that will generate around $400 a week.
Cheers
Matt
Thanks Matt
I’m beginning to form an idea to investigate – that maybe we can buy the land from him on the layby basis (taking title but with separate loan agreement to pay $xx per week so he has an income) and lease the land out for something (maybe horse agistment) whilst we then see if we can subdivide the land and build enviornmentally sustainable houses targetted at a niche of hobby farmers and environmentally conscious tree-changers.
Anyway, I’ll see what I come up with.
skippygirl
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