Residential Care Subsidies, Trusts, and Deprivation
The current legal landscape in New Zealand
For many years trusts have been used as an important tool for asset protection and estate planning in New Zealand. In the 1990s there was a boom in the number of family trusts established in New Zealand. A significant reason for this was the Residential Care Subsidy (“Subsidy”) scheme.
The Subsidy was developed to assist those people needing long-term residential care in a hospital or rest home. As the Subsidy is financially means assessed, you will only qualify if you have both assets and income under certain monetary thresholds.
From 1 July 2018, asset thresholds for the Subsidy are:
- $227,125 if you are single or for a couple with both partners in care; or
- $124,379 for a couple with one partner in care (not including the home and car which are exempt from being considered in the asset test in this situation). Couples can elect to be tested under the first option in which case the house and car will not be exempt and will be included in the asset test.
To meet the income test, any income generated from your assets must be less than $992 if you’re single, less than $1,983 if you and your partner are both in care, or $2,975 for a couple where one partner is in care.
This is where issues with the family trust may be relevant. Even if you qualify under both the asset test and the income test, the Ministry of Social Development (“MSD”) will enquire about your family trust including your actions around selling, transferring and gifting of your personal assets to the trust. In particular, the MSD is looking for signs of “deprivation” of income or assets. If the MSD determines that you have deprived yourself of an asset or income, they can add that asset or income back into your financial means assessment. The MSD has discretion to determine whether or not deprivation has occurred and as such each application will be treated on a case by case basis.
This area of law is in a state of flux. An important case was heard in the Court of Appeal last month and policy around the Subsidy may change significantly between when you establish your trust and when you apply for a Subsidy. As it stands, if you have finished gifting to your trust and the gifting has been under the allowable yearly amount (gifting to be no more than $27,000 per couple or $6,000 in the five years before an application for a Subsidy is made) it is unlikely that the MSD will consider your actions as depriving yourself of assets or income. However, as this area of law is currently evolving and each case is treated separately, you should be aware that this position can change at any time.
If you have a trust, it is important that its records are keep up to date so that it can continue to be a valuable tool for future planning. At Harmans we have a team with specialist knowledge available to provide you with legal advice about your trust. You can contact Phillipa Shaw at Harmans on 03 352 2293 to arrange an appointment to discuss this.