Inheritance & Centrelink: What to know when claiming an inheritance

While receiving a large sum of money can provide financial flexibility and an improved lifestyle, there can be concerns like what will happen to my Age Pension or will I lose my concession card?

Now if you’re Lachlan Murdoch, you don’t need to worry about a Centrelink benefit upon receiving an inheritance, but for 65% of Australian retirees that receive Centrelink payment assistance, you may need to plan for a reduced payment or maybe no longer being eligible.

In this article, we cover some of the important considerations when receiving an inheritance, the Centrelink reporting obligations, the common mistakes that people make and we’ll take you through some strategies that may help to optimise the Centrelink benefits. 

Australian Intergenerational Wealth

According to a report from KPMG, Baby Boomers make up about 21% of Australia’s population, but hold 48% of the nation’s private wealth. Not surprisingly, one of the biggest drivers of wealth has been the property market, with an average home value of $1.3M for boomers.

Australian baby boomers will start reaching age 80 in 2026, and over the next decade there is set to be a big shift with intergenerational wealth transfer. 

What counts as inheritance

So what does Centrelink consider as an inheritance? Well basically any financial assets, property, income payments or even lifestyle assets that are all normally captured under their Assets and Income tests, and can include:

• Cash from an estate
• Bank account balances
• Shares or managed funds
• Property or land
• Superannuation death benefits
• Lifestyle assets like cars, expensive artwork or a caravan.

Generally Centrelink allow 12 months to sort out the estate assets, but they will consider delays like challenges to the estate or other timing issues before the estate is finalised.

As part of your normal reporting obligations, you have 14 days to report a change in financial circumstances and upon receiving the inheritance. If there is a delay and you expect to receive the inheritance longer than say 12 months, you may need to explain the delay to Centrelink. 

Centrelink Assessment

Upon receiving the inheritance,  there will be an updated assessment for the ‘Asset test’ and ‘Income test’, that Centrelink use to determine eligibility for benefit payments. In the case of an Age Pension assessment, and as at January 2026, the total assets that ca be held before breaching the upper Asset test threshold is $714,500 for a single homeowner, at which point there is no more Age Pension. For a couple homeowner, the upper threshold is currently $1,074,000 when the Age Pension cuts off.

Lets look at an example for a Grace, who is a single Age Pensioner receiving part pension of $10,500 per annum, and has the following assets:

• $500,000 in an account based pension
• $50,000 in bank savings
• $10,000 home contents
• $20,000 Mitsubishi Pajero

Grace will shortly receive an inheritance from her mother’s estate for $300,000 that will take her total assessable assets to $880,000. By exceeding the threshold of $714,500, the Age Pension payments will stop and she will no longer be eligible for the Pensioner Concession Card, instead receiving  the less generous Commonwealth Seniors Health Card.

Now this is just an example for someone that will stop receiving Government payments. For some there may only be a reduction to the fortnightly benefit and for others there may be no change at all. It all depends on how much you receive, how you use the money and where your total assets and income sit on the Centrelink scale of eligibility. 

Planning with purpose

To prepare your finances and to limit the impact to your Centrelink entitlements, there are number of strategies that can be used to reduce your assessable assets:

• Reduce or repay your mortgage or any other loan to save interest costs.
• Make updates and renovate the family home, increasing the value of your home and reducing your assessable bank savings.
• Plan for a holiday or other personal expenses 

In terms of investing the inheritance proceeds, there are also a number of options to benefit in retirement;

• Invest in superannuation depending on your age eligibility and the annual limits. If you have a younger partner below age 67, their superannuation in the accumulation phase is not assessed for the purpose your Age Pension.
• Invest in lifetime annuities to provide a guaranteed form of retirement income, and also carries Centrelink benefits.
• Consider investing in funeral bonds or pre-paid funerals, where Centrelink will not assess the value up to $15,750 per person 

Lets take a look at a different client example, this time for a retired couple, Prudence and James. Only James is eligible for Age Pension, with Prudence being age 64 and below the Age Pension eligibility of 67.

James receives full Age Pension of $23,100 per annum and they have the following assets:

• $350,000 in an account based pension for James
• $100,000 in superannuation for Prudence
• $70,000 in joint bank savings
• $10,000 home contents
• $20,000 Honda CRV 

As per the earlier client example, a $300,000 inheritance will be received by James.

With careful planning the aim would be to apply the inheritance proceeds so there is no impact to James’s full Age Pension benefits. We could organise a strategy where:

• $250,000 invested in Prudence’s superannuation
• $15,000 for holiday pre-paid
• $15,000 to update the home
• $20,000 funeral bonds ($10,000 each)

In this case, we have allocated all of the inherited money that is not assessed by Centrelink, being the superannuation for Prudence, funeral bonds, arranged for spending to improve the home and allow for holidays. 

For any of the strategies, take the time to receive financial advice to consider the risks and benefits. It’s important to understand the impact to your Centrelink entitlements and in the context of your overall retirement finances. 

Common mistakes people make

While there are a number of strategies that can be applied effectively in planning for a Centrelink entitlement changes, there are other strategies that may have limited impact:

• Firstly, gifting or transferring an entitlement to another person
• Secondly, retaining money in the deceased estate for a prolonged period.

Centrelink has rules on the amount you can gift, with amounts gifted above $10,000 per financial year and $30,000 over a rolling 5 year period being considered as an asset and deemed to earn income for the next 5 years. Transferring your entitlement to another person is considered a gift in the eyes of Centrelink.

And once the estate proceeds are able to be paid, Centrelink will look to assess your entitlement as an asset. Most people are not aware but Centrelink can still assess funds held in an estate and as such keeping funds in the estate for a prolonged period may be a complicated option. 

Summary

While an inheritance can be life-changing, it can also create unintended Centrelink consequences if handled poorly. Professional advice can help preserve your eligibility for benefits, by exploring the options to invest in exempt assets and to use the funds for certain expenses.

Shaun Jones MAppFin (FP) 
Financial Planner at About Retirement