Elderly Services and Seniors Law Articles

The following articles were written by Brent Selwyn:

June 2011 - Will The Abolition Of Gift Duty Affect Your Ability To Qualify For a Residential Care Subsidy?

As has been highlighted in previous articles on the subject, gift duty is to be abolished with effect from 1 October 2011.  The question on the minds of seniors will be what effect this will have on their ability to qualify for asset and income tested benefits and in particular, the Residential Care Subsidy for senior care.

A key point to note is that the abolition of gift duty requires an amendment to The Tax Administration Act. This is the act, administered by the IRD, which presently contains a requirement for gift duty to be paid on gifts in excess of $27,00 within a 12 calendar month period. It is this provision which is to change from 1 October this year.

Entitlement to benefits on the other hand is administered by the Ministry of Social Development under the auspices of The Social Security Act 1964. Importantly for seniors it should be noted that there is to be no equivalent change to the social security legislation.

It is a basic tenet of our social security system and in particular, that pertaining to senior care that we should first look to the use of our own assets before we seek financial assistance from the state to pay for our care. Readers will be aware that the residential care subsidy is both asset tested and income tested. It is the income tested component we will concentrate on in this article.

With effect from 1 July 2005 the then Labour government introduced changes to the system as we then knew it. Prior to then the exempt asset limits had been very low and the system immensely unpopular with those who had elderly relatives in care. The amount of exempt assets that either a single person or a couple may have when looking to apply for a residential care subsidy has been steadily rising by $10,000 per annum on July 1^st each year to the extent that a single person (or a couple where both are in care) may now have $200,000 in exempt assets and a couple where one is in care may have $105,000 in exempt assets in addition to the family home, which is exempt as an ‘asset’ for that purpose if a spouse or dependent child resides in it.

On July 1^st this year those limits will once again rise to $210,000 and $115,000 respectively. However, under the Social Security Act there is no ‘allowable gifting’ amount for general benefits. In other words, we are required to use all available resources to support ourselves rather than look to the state. This will not change with the abolition of gift duty.

That is not to confuse the issue of Residential Care Subsidies where a small amount of ‘allowable gifting’ is permitted in the lead up to an application for a subsidy. This provision has always been (and will remain) out of synch with the gifting regime under the Tax Administration Act.

At present, when assessing an application for a residential care subsidy Work and Income (as agent for the Ministry of Social Development) will permit a gift of $5,500 in each of the five years preceding your application for a subsidy. From 1 July this year that allowable gifting level is to rise to $6,000 per year for each of the five years before your application for a residential care subsidy.

In addition, gifts of $27,000 per year are allowed for gifts made more than five years before your application. This is unchanged from existing policy. So, what does that all mean for senior’s looking to protect their hard earned assets? In essence it means that little or nothing will change. In looking at available asset protection and estate planning measures which you might utilise, the timing of any transaction as well as the purpose will still be paramount.

There are strong anti avoidance provisions under the Social Security Act to the intent that if you are seen to have deliberately deprived yourself of an asset which ought to otherwise have been available to pay for your care, then such disposition of property can be overturned.

In summary therefore, all seniors should be looking at how they own their assets and doing so in a timely fashion and with clearly defined goals in mind other than simply qualifying for a benefit you might not otherwise qualify for.

Harmans has had a team working exclusively in the area of senior law for over 12 years now and a cornerstone of our service is that we offer an initial appointment at no charge to you. Only if you then elect to engage our services do you incur fees. If you are looking for a Christchurch Solicitor specialising in senior law we invite readers to contact our seniors representative Fleur McDonald on 352-2293 to arrange your complimentary appointment to review your situation.

____________________________________________________________________________________________________

January 2011 - More on Gift Duty

This article follows on from the previous article below and will be published in the February 2011 issue of Older and Bolder.

The Government has stated its intention to abolish gift duty, most likely from 1 October this year.

Gift duty has existed in New Zealand in one form or another since the mid 1880s and, in a large part was always considered a deterrent to people transferring ownership of their assets prior to their death in order to avoid death duties.

However estate duties were zero rated in the early 1990’s, before being abolished altogether by the last government. So, with New Zealand having one of the largest number of family trusts per head of population of any country in the world, one can surely argue that they abolishing gift duty is a great move. Right?

Well, before we celebrate the demise of gift duties too long and hard, remember this, the very act of completing annual gifting at least caused yearly attention to be focused on the trust and, if there had been any other material changes of circumstances, gave rise to opportunity to address those issues.

So, if anyone is thinking that the abolition of gift duty will mean you can simply ‘set and forget’ your family trust and never have to turn your mind to it again, we would suggest that this is a recipe for potential disaster.

In order to obtain the protection of assets that one seeks from a trust, it is vitally important that the trust not be seen as a sham, or simply an ‘alter ego’ of the settlor’s.

If there were to be a move away from annual meetings of trustees with advisors, then the risk would be high that trust assets could be treated by settlor’s in the same manner as personal assets, potentially putting the trust at risk.

The reality is that there is so much more to trust administration and compliance than the, soon to be non-existent gifting programs. One should turn ones mind to a myriad of other issues on a regular basis. Such issues as whether there are other assets which could or should be in the trust. Are the trustees and beneficiaries still appropriate i.e. have there been any material changes of circumstances? Often one can overlook an inheritance, a cashed in superannuation, redundancy payment, or the proceeds from the sale of an investment asset which perhaps ought to be in the family trust.

For those of you who have put off forming a family trust because of age and the time which was going to be taken to gift the assets to the trust fully, the change of law may well provide an opportunity for your assets to be effectively transferred to a trust. Much will depend on how the ‘look back’ rule is addressed by the Ministry of Social Development. At present there is a 5 year look back period for assets gifted prior to an application for a residential care subsidy, but it is possible but not necessarily inevitable that this period could be lengthened by change of policy.

However, the same warning applies; the abolition of gift duty will place an onus on trustees to ensure that trust activities and record keeping are first rate in order to avoid any risk of the assets being seen to have been treated by the settlor’s as their personal assets, ignoring the existence of the trust.

December 2010 - Gift Duty to be Abolished

Revenue Minister Peter Dunne announced recently that it is the government’s intention to abolish gift duty effective from 1 October 2011. The announcement follows a review by the Inland Revenue Department to assess the impact of the repeal of gift duty. When the review was first announced by the minister earlier this year an obvious area of concern surrounded the impact the repeal of gift duty might have on other areas of law such as creditor protection and asset tested senior benefits for residential care.

The review involved various government bodies who collectively reached the conclusion that there is little, if any, risk to their various areas of operation by the proposed repeal of gift duty. Furthermore, the revenue collected by the IRD for gift duty was less than $1 million per annum so loss of revenue was not a major concern either.

Along similar lines, the biggest question mark seemed to be whether there would need to be any corresponding change to laws surrounding such things as creditor protection and senior benefits and in particular, those which are asset and income tested such as the residential care subsidy. Indications are that existing legislation is adequate and that no changes are proposed as a result of the abolition of gift duty.

At present Work and Income inquire into gifts made within 5 years of an application for a residential subsidy and whilst it might be mooted that no change in legislation is required as a result of the abolition of gift duty, the ‘look back period’ is a policy decision by the Ministry of Social Development and if I were a betting man I would have a small wager on that policy being reviewed so that Work and Income look at gifting further back than the present five years once gift duty if abolished.

If you already have a family trust in place and you are still in the midst of your gifting program you might wonder what they implications are for you. Whilst the draft legislation is to be introduced into the house shortly, it is not to become law until late next year so, if you have annual gifting due between now and 1 October 2011, on balance we would recommend that you continue with that gifting.

Once the legislation is in place the situation is quite straightforward in that you will be able to finish your outstanding gifting in one gift after 1 October 2011. This will save you potentially significant sums in compliance costs

In all other respects nothing will change with the transfer of assets to a family trust. Any asset will still have to have a current market valuation and be transferred to the trust for adequate consideration with a corresponding deed of acknowledgement of debt back from the trustees. The significant difference of course will be the ability to finalise gifting in one lump after 1 October 2011. The proposed change will bring New Zealand gifting law into line with that of Australia.