Advisors may be under the impression gifting assets to a family trust will provide some degree of protection from a means assessment for the residential care subsidy under the Social Security Act 1964. However the level of protection is not as significant as you may initially have thought.
It is widely known that the means assessment “adds back” gifts made within 5 years of the date of assessment if the gift is in excess of 5,500 p.a. It is perhaps less widely known that this claw back also extends to gifts made by the person’s spouse or partner.
The Chief Executive of the Ministry of Health also has the discretion to claw back more assets if he or she is satisfied that a person applying for a means assessment, or that person’s spouse or partner, has “deprived himself or herself of assets” (see section 147A of the Social Security Act 1964)
Regulation 9B of the Social Security (Long-term Residential Care) Regulations 2005 sets out particular instances of “deprivation of assets” for these purposes. They include situations where the total value of gifts (made by the person applying for a means assessment and/or their spouse or partner) in any 12-month period exceeds in aggregate $27,000.
Thus, couples who have transferred property to a trust by way of a gifting programme (which will usually result in aggregate annual gifting of $54,000) will be at risk of having additional assets “clawed back” under these rules to the extent they exceed $27,000 p.a. maximum.
Regulation 9B also includes a number of other examples of deprivation of assets for the purposes of section 147A, including a failure at any time to exercise any right to demand a payment (e.g. the failure to demand interest under a marshall clause loan) and an investment at any time in non-income-earning assets (e.g. buying a play station).
I am not aware how frequently WINZ (which administers the residential care subsidy) makes a detailed enquiry into an applicant’s gifting arrangements. Does anyone else have any experience in this area? Nevertheless care needs to be taken in advising clients with gifting programmes to ensure that they are not given a false sense of security with regard to the level of protection that a trust and gifting programme provides in relation to the residential care subsidy.
WINZ certainly investigates a persons overall situation in relation to gifting etc.
They are especially interested in the situation whereby a person sells assets to a trust with debt back.
If a person applies for assistance from WINZ, WINZ will request information as to whether there is any debt owed to that person by their trust. If there is a debt owing it will usually be in the form of an on demand loan. WINZ will be reluctant to provide assistance to a person in the situation where such a loan exists. Technically speaking this person could make a demand for repayment in substitution for the WINZ assistance.
It is therefore important to gift any balance owing as soon as possible.
This is certainly the case with regard to the ‘Benefit’. I am not sure if the same enquiries are made with regard to residential care subsidies.