With the abolition of gift duty, it is now possible to gift substantial sums without the imposition of gift duty. However, before making any substantial gift, whether to a trust or some other person (or company), it is important to appreciate that some gifts can come back to bite.
Prior to the abolition of gift duty there were limits as to how much could be gifted away in any one year without affecting the ability to qualify for a residential care subsidy. Simply put, those limits were $6,000 per year for the five years prior to applying for a subsidy, and $27,000 per year prior to that.
Following the abolition of gift duty these limits are unchanged. This means that a single gift in excess of $27,000 can mean that a person who might otherwise be entitled to a residential care subsidy may not qualify due to having deprived him or herself of the gifted assets. As gifts in excess of $27,000 cannot be “spread” over subsequent years, it will be counted as deprivation even if the gift could have been made in smaller permissible increments. Example:
Mary makes a single gift of $270,000 15 years before applying for a residential care subsidy (Mary does not make any further gifts after that). The amount in excess of $27,000 (that is $243,000) will be counted as deprivation and will be added back into Mary’s means for the purposes of means assessment. However, had Mary gifted at $27,000 per year, this would not count as deprivation.
Note that in some circumstances gifts made by a partner or spouse will also count towards a means assessment.
The legislation and regulations surrounding the entitlement to residential care subsidies are complex and this article should not be relied on other than as an illustration of risks that can arise from gifting. For more information on residential care subsidies see http://www.workandincome.govt.nz/individuals/a-z-benefits/residential-care-subsidy.html