I put my house into a family trust. Can the government use that against me if I go into a rest-home and want to apply for a Residential Care Subsidy?
This is a pretty simple question, yet it does not yield a simple answer. The initial answer is, it depends, although having said that, indications are that the answer is more likely yes than no.
When someone puts personal property into a trust, the value of that property is then a debt owed by the trust to the donor. It is normal for the debt to then be forgiven by the donor (commonly known as ‘gifting’). When gift duty existed, the maximum sum which could be gifted each year, without duty, was $27,000 per person. Gift duty was abolished in 2011, but that doesn’t mean that you can gift large sums without consequences.
If you wish to maximise your opportunity for eligibility for the government’s Residential Care Subsidy (RCS), provided by the Ministry of Health, you need to understand the Ministry of Social Development’s (MSD) policy in relation to financial means testing and, in particular, the allowable limits on disposal of assets in any 12 month period. Any property disposed of in excess of the allowable limit is considered to be a “deprivation” of assets and can be counted as a personal asset for the purpose of the means test.
Who can get a RCS?
You may be able to get a RCS if you:
It may also depend on:
If you're aged 50-64 and single with no dependent children, you'll automatically meet the asset test.
If you're 65 or older, your and your partner's (if you have one) total assets must be $236,336 or less. If you have a partner who's not in long-term residential care, you can choose whether the total value of your combined assets is either:
Your house isn't counted as an asset if it's the main place where your partner, or dependent child, lives. For this reason, in some situations it can be advantageous to transfer the house from a trust back into personal ownership before a husband, wife or partner applies for the RCS.
Gifted or sold assets in the last 5 years
You are entitled to gift or sell up to $6,500 of assets each year for the last 5 years from when you apply for the RCS. $6,500 is the total amount between you and your partner (even if they've died).
Gifted or sold assets longer than 5 years ago
You are entitled to gift or sell up to $27,000 of assets each year for the years longer than 5 years ago (from when you apply for the RCS). $27,000 is the total amount between you and your partner (even if they've died). This often will pose an issue as, in many cases, a husband and wife, as settlors of a trust, have gifted $27,000 each per year for a number of years. This means that there has been excess gifting of $27,000 per year and MSD can take that into account for asset testing.
How far back does MSD look?
There is no simple answer to this. As we said at the start, it depends, including, it seems, on which MSD official does the assessment. What we can say is that anything in excess of the above limits can be looked at. If it is deemed that there has been a deprivation of assets, there is a good chance that the value of that deprivation will be included in the calculation of your assets.
But wait, there’s more . . .
If you meet the asset test, that is just step 1. You will then be subject to an income test.
Your income must be below specified limits. How this is worked out is different for each type of income.
What's included as income
MSD requires more information if you have or your partner has ever:
What's not included as income
No allowance for gifting of income
Where income generating assets (eg shares, rental properties etc) have been gifted to a trust, MSD can look at this, regardless of how long ago it occurred. While there is an allowance for gifting of assets, it seems there is no allowance in relation to gifting of income. We are aware of an applicant who was denied a RCS because 30 years previously she had gifted income earning assets to a trust. The simple lesson here is that if a trust is to acquire an income earning asset, it needs to purchase it and preferably from a source other than a settlor.
The Residential Care Subsidy is intended for those who would otherwise be unable to afford to pay for rest-home care. It can readily be seen that taking any action to deliberately deprive yourself of assets and income in order to qualify for a RCS runs counter to this. Of course, there are other reasons for a trust to be settled, but if there has been excessive gifting of assets or gifting of any income earning assets, an application for the subsidy could well fail. The Ministry has indicated it will be paying much closer attention to dispositions of property made by an applicant to their family trust on the basis that if applicants have other means of funding their rest-home care then these resources should be used before seeking financial assistance from the government.