Residential Care Subsidy
Recent developments with gifting
“The Government is tightening the screws on recovering rest home costs with Family Trusts set up years ago now considered fair game.”
(Listener Article 24 November 2012 Loss of Trust by Ruth Laugensen.)
There has been a lot of recent debate about this. There is a perception that the rules have changed and that is seen as unfair. However from the perspective of the Ministry of Social Development (“MSD”) there has been no change and the law has been clear since the passing of The Social Security (Long-term Residential Care) Regulations 2005.
The key message is that the MSD is concerned with social security law not trust law. It is the intention of the MSD that those who have resources should be required to use those resources to support themselves.
The confusion has been that prior to the abolition of gift duty, gifting had traditionally been completed at a rate of $27,000 per annum per person due to the rules contained in the Estate and Gift Duties Act 1968 that applied until 1 October 2011. Unfortunately little attention was paid to the changes to the level of permitted gifting under the 2005 Regulations.
For residential care purposes:
- gifting is allowed at $27,000 per applicant in each year outside of the five years immediately preceding an application for a subsidy;
- within the five year period that allowable gift is $6,000 per applicant;
- an applicant and their spouse/partner are treated as a “single economic unit”. This means the combined allowable gifting is $27,000 or $13,500 per individual outside the five year period.
Practically this means that if traditional gifting practices have been followed in the case of a couple, $27,000 per annum is likely to be regarded as excess gifting and more if it has occurred within five years of applying for a subsidy. This means that the excess gifting is then “added back” and treated as if it were an asset still held by the applicant.
There is no solution to this excess gifting and while the MSD can exercise its discretion to overlook the excess gifting, where assets have been transferred to family or to a trust the MSD does not generally overlook them. The only exception is where the only asset gifted is the former family home, where the spouse is still living in it and the total assets are less than the lower threshold (currently $117,811).
If you are worried that you may be caught by these gifting rules or to ensure any excess gifting does not become excessive you should seek appropriate advice from us.