Sometimes people really do win the lottery. But here is a story of someone who won the lottery twice.

We recently came across a genuine good news story. A woman just approaching aged pension age won a substantial amount in a national lottery. She needed the money! Before the win, she was living on the disability support pension and had no personal assets other than her car. She was renting her home, and spending the rest of her life on the pension was what she was expecting.

And then her lucky numbers came up. Happily, following a friend’s recommendation, this lady went to see her adviser. As it turns out, this was like winning the lottery for a second time!

The lucky winner had hatched a plan: she was going to use $300,000 to buy what is, in fact, her first home. This would then leave her with about $450,000 in cash. As she had never owned a home, she thought $300,000 was a lot to spend – and it would buy her quite a lot of house in the town in which she lives.

This was not a bad plan. But it could be made a whole lot better. Winning the lottery had actually meant that this lady lost her entire disability pension. The amount she won was almost exactly the upper threshold for the assets test. Of course, she didn’t mind! But the plan of retaining around $450,000 of cash would mean that, while her pension was reinstated and would rollover into the aged pension when she has her next birthday, the pension amount would be limited to about $8000 per year. This is about $13,750 less than the maximum pension that is payable as an aged pension.

The better advice was quite simple: spend $500,000 to buy the absolute best house in town. This would ‘only’ leave $250,000 of cash, which is just below the lower threshold for the assets test for a home-owning aged pensioner. This would mean that she receives the full aged pension. Some of the cash could perhaps then be used to purchase some other investments, while she draws a small amount down on her capital each year.

Even better, because this lady had never owned a home, she gained some exemptions from stamp duty and other first home buyer assistance. The news really did keep getting better.

But the main point was that, by investing an extra $200,000 in a home, this client increased her annual Centrelink income by $13,750. This represents a guaranteed rate of return of almost 7% on that $200,000. And this was the return on her investment in her own home!

This is something worth remembering when it comes to Centrelink benefits: some people estimate that eligibility for the aged pension is the equivalent to having about $600,000 invested. That is why the pension is sometimes referred to as the ‘world’s greatest annuity.’

What’s more, the extra $200,000 was effectively invested into the property market. This means it can be expected to at least retain its value – although it will probably grow over time. This is where this lady’s estate planning really kicks in.

The lady has two adult children. Given her circumstances, she never expected to be able to leave them any sort of inheritance. By investing more of her winnings in the home, she receives more Centrelink benefits. This means that she does not have to spend as much of her winnings to finance her own needs. Obviously, this means she can leave more to her kids when she no longer needs the money herself. Even better, by investing the money and buying the best house in town, the kids will eventually each inherit an amount equal to (at least) an amount they would need to buy a decent house in town.

As it happens, moving from a $300,000 home to a $500,000 home also means purchasing a property with four bedrooms rather than two. This provides real security – perhaps especially in the case of her adult daughter. If a relationship breaks down in the future and a single mum and grandchildren need somewhere to live, this big house will easily accommodate everybody.

But the best bit: this lady gets to really enjoy her lottery winnings. Effectively, when she won the lottery she did not just win her first home. She won the town’s best home!

Personally, we love this kind of advice. It makes such a difference – not just to our client but to her children and grandchildren as well. As it happens, our AFSL is one of the very few that actively encourages advisers to recommend property purchases. In particular, Dover encourages advisers to recommend ‘proper’ property purchases. Not grossly-inflated off-the-plan apartments that pay commissions to advisers (these are actually banned by Dover – not that we would ever touch them anyway). But real houses bought in a real property market with many buyers and sellers. You know: houses that people actually enjoy living in! Dover loves them and so do we.

Turns out investments like this are the best way to maximize your kids’ inheritances, as well. It is a win-win. And we love win-wins.