Will We Get Inheritance Or Will Rest Home Care Use It? - Ask Susan

Saturday, 7 December 2024, 7:26 pm
Article: RNZ

Susan Edmunds, Money Correspondent

Send your questions to susan.edmunds@rnz.co.nz

My parents are in their late 70s. Dad is in rest home hospital care in a rest home with physical issues and dementia and he and Mum own a unit in the same retirement village, which would gain $150,000 when they sell (die or both in care). They have joint savings of $50,000 and own a car (no other assets). Dad's care is funded by the government and is $11,000 a month.

In the unlikely event Mum was to pass away before Dad, would the house proceeds and savings be used by the government to fund Dad's care? Or would this inheritance be paid out to us children as per their will?

Your parents' assets are below the rest home subsidy asset test threshold so even if the money were to pass to him as relationship property, as I expect it would, it would not be enough to affect the subsidy for his care.

The threshold of assets in this situation would be $284,636. It would only be assets above that which would affect him receiving the government support.

I'm a big believer in Bitcoin and have $50,000 invested and it's doing really well. I'm also well aware of the volatility and how things can change. Before Bitcoin, I would have put as much money into paying off the mortgage as possible, but now I'm questioning if that's the best approach with the extra money we have.

We have a mortgage of $540,000 and we can see that the majority of our payments are paying the interest and little off the principal. What advice do you have on paying off the mortgage and investing in Bitcoin (or other investments for that matter)?

If on average we can make 50 percent on Bitcoin, is it best to put our leftover money into Bitcoin and make lump sum payments off the mortgage each year or so, or pay as much off the mortgage weekly as possible? Are there any resources that we can use to help us figure out what's best?

Lots of people with mortgages have to weigh up what to do with any extra money they have available to them.

I've had similar conversations in the past with people when the sharemarket was really strong, asking if they should invest in shares rather than pay off their home loans faster.

It really comes down to how much risk you're willing to take. Paying off your mortgage is a guaranteed, risk-free return.

You know that paying down your principal is going to reduce your interest bill, and help you get rid of the debt faster. Even small extra payments can make a big difference to the cost of your loan overall, particularly at the start. There are tools online, such as Sorted's calculator, that can show you the impact.

With investments, you can't be sure that you're going to get a return that's better than the home loan would have given you. Past returns are no guarantee of future performance, as any investment manager would tell you.

But, particularly with more people buying houses later in life, most of us need to have some investments alongside our home loans because if we waited until we paid off the debt to get started, we might not have a lot of time until we needed the money.

As you note, Bitcoin is highly volatile. You might get 50 percent this year but then you could end up losing money the year after.

If it were me, I would keep my exposure to cryptocurrency as a relatively small proportion of my financial life - I've been told 5 percent of an investment portfolio is about right - while trying to maximise mortgage repayments where possible.

I am a teacher working three days a week and receiving the pension.

I am interested in changing my tax code to a tailored tax code. IRD have asked which income I want this applied to. I am assuming my pension? My teaching salary is the largest of the two.

Should I wait until the new tax year or do it now?

Robyn Walker, a tax partner at Deloitte, says tailored tax codes exist to allow taxpayers to have their tax withheld at the source at the right amount - assuming there are circumstances which mean that having tax withheld at standard rates might not be right.

"When someone is receiving a pension as well as continuing to work, the common approach is to apply a standard tax code to the main source of income and then a secondary tax code to the lower amount," she said.

"In this case, the earnings as a teacher should have the M tax code applied, assuming there is no student loan or other benefits being received. The tax code for the pension should have a code which varies depending on what total income from both working and the pension is expected to be - it looks at what is the marginal rate that should be applying based on expected total earnings. In most cases this should get you to about the right answer.

"A tailored tax code could however be useful if there are other circumstances, including changes in income levels - for example if you worked part of the year on a higher income and then scaled back your work."

She says, if you decide to get a tailored tax code, you need to get this from IR and give it to MSD.

Tax codes have to be renewed at the end of each financial year, otherwise they default to 45 percent.

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