Implications of Gifting on Residential Care Subsidy Eligibility
Trusts are a popular choice in New Zealand for families looking to protect their assets. The settlement of a trust often involves the gifting of personal assets to the trust. Up until 2011 the transfer of personal assets of more than $27,000 per year attracted gift duty. When gift duty was abolished gifting entire assets at once to a trust appeared to be an attractive option. However, while gift duty no longer exists, the implications of bulk gifting should be considered before undertaking the option.
One important implication is the effect that bulk gifting can have on your eligibility for the residential care subsidy. The residential care subsidy is a scheme, run by the Ministry of Social Development, that provides support for eligible individuals in rest home or hospital care. There are two different asset testing thresholds and an applicant must satisfy one of these.
If you don’t have a partner, or your partner is in long-term residential care, the total value of your combined assets must be under $224,654. If you have a partner who is not in care, you can chose whether the value of your combined assets is either the same as above, or $123,025 which does not include the value of your house and car. A home owned by a trust is not eligible in this option. Assets considered by the Ministry include any cash, life insurance policies, investment properties and any loans made to other people, including to family trusts.
Gifting is allowed under the subsidy scheme but there are restrictions on the amount that can be gifted over a twelve month period.
Currently, gifts of $27,000 per year are not assessed as assets. In the context of a partnership or marriage, this $27,000 is not per person but is for the couple overall. Any gift over $27,000 per year will be considered an excess gift and will be assessed as part of your assets. This means that if you made a one off gift of $400,000 to your family trust, only the first $27,000 would beexempt from an assessment of assets. The remaining $373,000 would be considered excess and would be included in your assets. This is the case even if you do not gift up to the $27,000 in any of the years that follow your bulk gift. There is also a time limitation on what gifting is exempt from an assessment of assets. Any gift made within the five years directly preceding a subsidy application will be assessed as a personal asset however the gifting of $6,000 per year is currently not assessable within that five year period.
Asset testing is just one part of the assessment for a residential care subsidy. An income assessment is also required.
It is important to plan for the future. The establishment of a family trust has many benefits. Understanding the impact of gifting is an important topic of discussion for anyone with a family trust. If you want to know more details about trusts or estate planning give Phillipa Shaw at Harmans a call on 03 352 2293 to arrange an appointment.