Should farmers aim for Centrelink or not?

Transitioning a family farming business to the next generation

We recently advised a couple in their late 50’s on how they could best transition their family farming business to the next generation. From our experience, the most important thing to address first in any family succession plan is the financial security of the parents.  It’s virtually impossible to transition the farm without knowing how the people who are exiting the business will be able to support themselves.  That financial support might include continuing to receive income from the farm or having sufficient investments to be financially secure or the Centrelink Aged Pension or a combination of these.

Of course, to be financially independent of the family farm means that there are sufficient investments and savings to generate the income and capital needed.  This might be possible for some families but certainly not all.

A CentreLink Aged Pension?

centrelink-logoCentrelink can be a solution for those who have little saved but the trick is to know the qualification rules and then arrange your affairs in the most effective way.

The current full rate of Centrelink Aged Pension for a couple is almost $34,000 per year and this is reviewed every 6 months. With today’s interest rates, you’d need almost $1.2m invested at 3% to earn $34,000.

The couple I referred to in the beginning of this article operate a farm with almost 3,000 acres and 2 adult sons eager to join the business.  The parents have a modest amount saved and can’t see how they can plan their exit, let alone allow their sons to be involved in the farm.  If things are tight with one family relying on the farm, there’d be no chance with 3 families.  Their situation was causing frustration in the family because there seemed to be no solutions.  Centrelink wasn’t something they’d considered or thought they might receive.

Qualifying for a CentreLink Aged Pension

We’re certainly not advocating that people aim for Centrelink benefits but for some it could be a part solution or their only option.  To qualify, Centrelink will assess your assets and income.  From Jan 1st 2017 the upper asset limit where no pension is payable reduces to $823,000 and, most farm properties, would be worth much more than this.  However, by transferring the farm assets to the next generation, you can apply for the Aged Pension after 5 years.  This is called the ‘deprivation of assets’ rule.  In this case, timing the transfer is important.  Currently, the age qualification is 65 but will rise to 67 in the next 7 years

There’s still the opportunity to have up to $375,000 in assets with no reduction in the Aged Pension for a couple.  The amount of pension reduces for every dollar of assets over the lower limit and cuts out at $823,000.  Therefore, you can have investments valued at say, $500,000 and still receive a part pension.

The other handy thing for farmers to know is if you have lived continuously in your home on the farm property for 20 years or longer.  In this case, the title isn’t included in the assets test.

The best Solution comes from Communication

We feel that if a farming family is willing to communicate and work together, then there are solutions to make a successful succession of a farm business from one generation to the next.  We’ve helped many of our farming clients to facilitate discussion between family members and help develop an overall succession plan.  In fact, there are some quite amazing results with multiple benefits including resolving estate planning issues and tax efficiency.  Ultimately, what every family wants is harmony and maintaining good family relationships.

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