Articles: Trusts and Asset Protection Articles
"Residential Care and the Government" - by Miles Agmen-Smith
© ASCO Legal 2009
Although these issues may seem to be far in the future for you and your family, the better acquainted you are with the facts now may save large amounts of money later.
With Residential Care Subsidies, if the Government later in life provides you or your spouse with free or subsidised retirement home accommodation, then at that stage the Government can reclaim money from your home or assets as well as retaining a proportion of any pension or superannuation, or some other benefit you are entitled to leaving you entitled to just $43.23* a week to spend and a clothing allowance of $271.12* a year. The same would happen to, for example, your parents if they might need residential care, and would hope to be able to apply for the residential care subsidies.
To avoid this it is helpful to you and members of your family if plans are made and put into place as many years as possible before any need arises so as to take full advantage of concessions and exemptions which are available to those who plan ahead.
What does the Subsidy provide?
The Residential Care Subsidy can be available to people who qualify, if they are aged from 50 onwards if they are single, or from age 65 years and onward for people who have either a spouse or partner or a dependant child.
If long-term residential care is needed in a rest home or a hospital then the Ministry of Health may pay part of that cost by way of a Residential Care Subsidy.
However, when deciding whether or not to make payments, each person who applies is tested by Work and Income as to their financial means. The Ministry of Health also assesses whether or not the care and health requirements for the person applying for the Subsidy are such that long-term live-in care is really required. However, even if care is required, the Residential Care Subsidy is only provided to those who also do not have the means to provide it for themselves.
What can the Government take?
Ultimately repayment is required by the Government from the assets (and the income) of the person receiving the subsidy. Available income is taken from applicants during their lifetime, and the balance usually by way of deduction from their Estate, when it is administered, if in fact there are any funds left. However, if the house is sold beforehand, the money is taken when the sale takes place. So where there are assets then the Subsidy is only a loan.
When assessing assets, the Government does allow some exemptions, if they apply including:
· Personal belongings such as clothing and jewellery;
· Household furniture and effects;
· Pre-paid funeral expenses for the person (and for the person’s partner) of up to $10,000 each;
· Assets which have been gifted away if the gifting process qualifies.
Most other assets are claimed for repayment. This includes cash money, the family home, and investments starting after an exemption limit which varies between (from 1 July 2009) from $119,614* to $218,423* depending on circumstances.
Steps You and Your Family can take
The first of these is clearly to consider gifting so as to reduce the size of your assets:
One option is to consider gifting to a family trust which you or some other family member has set up and which is suitable for the purpose. Making these gifts does not require any actual cash money. Very often this is done by transferring funds into a trust which is then able to use the asset (or money) for the benefit of the person making the gift, but keeping the “ownership” of the money separate so as to be exempted from being reclaimed by the Government later.
A huge number of New Zealanders now set up family trusts, usually with a gifting programme in favour of their trust so as to transfer assets. We have seen estimates as high as 400,000 New Zealanders who have done so. By this means, assets are transferred into their trust, which cares for them during their own lifetime and their surviving spouse or partner thereafter, and then has funds to provide for family members.
This is an important area where, the earlier these arrangements are made, then the larger the amount of assets which can be transferred for the long-term benefit of the family.
How much to gift?
Previously, the value of assets transferred was capped at $27,000 per person in each year because gifting more than that would have attracted payment to the government of Gift Duty Tax.
However, the position is more complicated now because of some recent (and retrospective) legislation which is well worth taking into account. Because of this, it is very commonly better to limit the amount of gifts, where residential care subsidy availability is likely to be a potential option, to amounts of only $13,500* per person per year (half of the old limit). We can explain that further, and also other options including mass gifting where that should be taken into account, and best ways to go about that.
When making assessments, gifts which were made within the period of 5 years before applying for the Residential Care Subsidy are exempted up to a limit of $6,000* per year, each. This means that $6,000* per year can also be transferred away nearly right up to the time the subsidy is needed. All these factors and options make it very important that these gifting programmes are put in place as early as possible so that as much as possible can be transferred in good time.
Many people have decided to make provision for pre-paid funeral expenses by setting aside these amounts in special purpose trusts, called “Funeral Trusts” which are simple and easy to arrange.
These enable people to claim the exemption of up to $15,000* (or up to $15,000* each for couples).
Depending on circumstances, there may be a variety of other steps which could be considered.
Income is also taken into account in assessing Residential Care Subsidy entitlement. There are complicated rules about this. Some types of income do have an exemption (for example certain pensions) but most income received is included. There are also various different arrangements which apply if there is a spouse or partner involved.
Again, if income is paid into a trust then, depending on the details of the agreements, that income may not be claimable by the Government (beyond ordinary income tax requirements) and can therefore accumulate and be used for the benefit of spouses, partners and other family members instead.
What action should you take?
It is usually very valuable to you and to other family members who might be affected in different ways to find out as soon as possible what are the best options for you. Because the quicker many of the possible steps are taken and the sooner they are put in place, the better the results. It is usually very desirable to find out as soon as possible what the position for you or your family members might best be and make your plans when you have that information as to what are the best things to do, and when to do them. The starting point is always to obtain information about what best fits your or your family’s circumstances.
* Some amounts as shown are changed quite regularly by law changes, changes to the Consumer Price Index, and other updates.
* Changes as per Amendments Regulations (No 2) 2014 are included.
We have prepared this guide to and for our clients. It is not a substitute for detailed advice as every individual situation differs, and also government policies, laws and general conditions constantly change. We are happy to assist anyone who wishes to obtain more detailed advice or information on these or other matters.
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