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Gifting, Residential care subsidy, Trusts

Residential Care Subsidy Appeal lost

Commentators and advisers have been divided regarding whether or not gifts made by couples are aggregated for residential care subsidy purposes.  A decision by the High Court that gifts are aggregated, has now been up-held by the Court of Appeal.  So what does this mean?  Simply, for a person with a spouse or partner, gifts made by the spouse or partner will be taken into consideration when determing  entitlement to a residential care subsidy.  Accordingly, the permissible limits of:

  • $27,000 per annum outside the five year gifting period
  • $6,000 per annum for the five year gifting period

will be limited to the gifts made by the applicant, and will include gifts made by the applicant’s spouse or partner.  For example if both Trudy and Rick gift $27,000 a year, that is $54,000 between them, if the limit is $27,000 and Trudy goes into care, although her gift of $27,000 will be allowed, the gift made by Rick will not and will be included in  the calculation of Trudy’s means.

A practical response may be to limit annual gifting to $13,500.  However, note that for the last five years prior to going into care, the annual limit is $6,000, and so for this period a cautious response would be to limit gifting to $3,000.

That said, an element of crystal ball gazing is required because if both partners/spouses go into care, then the permissible amount of gifing is $27,000 or $6,000 each as relevant.

References:

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Discussion

2 thoughts on “Residential Care Subsidy Appeal lost

  1. Hi Vicky,

    I would be interested to know if you have had any disputes with MSD and your opinion on strategy.

    I know of people who have a generic estate plan in place, are part way through gifting etc. However, when these people come to apply for rest home subsidies they can often be in a worse position by having their home in a trust by virtue of having gifts clawed back, loans to the trust included in their asset base, and worst of all, they can’t claim the personal home exemption under the asset threshold (“B”, from memory).

    Some of these types of people don’t necessarily have the funds to pay for rest home fees (unless the trust downsizes their home and pays for it) and they have actually been put in a worse position by the estate plan that has been set up for them.

    An idea could be to sell the home out of the trust back to the clients to offset the trust’s loans from them and so they can claim the personal home exemption. Do you have any ideas how MSD would view this? As far as I can tell it couldn’t be challenged on any voidable disposition grounds as it would be a sale at market value and any voidable disposition grounds would only apply to the individuals and they are in fact purchasing assets not disposing of them.

    I would be very interested on your brief comments on this matter.

    Posted by Nick | October 9, 2013, 10:17 am
    • Where a person or a couple are in a worse situation than they would have been, but for settling a trust, MSD has allowed what it calls “trust reversals”. Trust reversals are not provided for by the Social Security Act or the relevant regulations, but are allowed as a matter of policy. A trust reversal occurs when property sold to a trust is distributed back to the settlors and the settlors are back in the position they would have been but for the trust. Before embarking on a trust reversal, care is required from a trustee perspective to consider wider trust law obligations.

      See Asset Planning – the impact of MSD’s means assessments for residential care subsidies (available from http://www.lawyerseducation.co.nz)

      Posted by vickiammundsen | October 9, 2013, 2:01 pm

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