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Gifting, Residential care subsidy

Trusts and residential care subsidies

Approximately 19,000 New Zealanders in long-term residential care receive a residential care subsidy (RCS), that is financial assistance with long-term care once a person is no longer able to be cared for at home.  

To qualify for a RCS a person must first be able to show a limited level of assets.  However, if a person has transferred assets to a trust during that person’s life-time, this will not of itself, prevent a person qualifying for a RCS.   In fact gifting rules, permit gifts of $6,000 per annum for the five years prior to an application and $27,000 per annum outside the five year period.  However, as there is no ability to spread gifts outside the five year period, a single large gift could mean that a person who might otherwise have qualified for a RCS will not be able to.  Advice should be sought before making any significant gift to a trust if RCS eligibility is a concern.

The issue of beneficial interests in assets while still meeting RCS criteria is complex and raises difficult questions of social policy and means engineering.

As at January 2011, 10.2% of applications for a RCS declared the existence of a family trust.  Less than six months later that figure had increased by nearly 20% to over 12%.  The significance of this, given the number of trusts in New Zealand (currently estimated at over 400,000 with more than 167,000 homes owned by trusts), and the static RCS budget, cannot be overstated.

Since the abolition of gift duty, incalculable sums have been gifted to trusts by way of debt forgiveness and through direct gifts.  Many of those donors will not appreciate that those gifts may forever extinguish any later ability to claim a RCS.   The simple facts are:

  • New Zealand has an aging population
  • the RCS budget has not increased following the abolition of gift duty
  • increasing numbers of applicants have gifted assets to trust, thus eliminating those assets from means assessments
  • even absent the abolition of gift duty, it could be expected that the RCS budget would be under increasing pressure

Any person contemplating a RCS, whether in the immediate or distant future, should seek advice.

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