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Residential Care Subsidy – Means Assessment and Gifted Assets

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.

24 Responses

Chris Duncan on March 26, 2010 at 8:55 am

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.

Jennifer Dalziel on March 28, 2010 at 10:34 am

Asset testing for eligibilty for Rest Home subsidies means that people entering Rest Homes with assets of more than aproximately $200,000 must pay the balance of the fee for ther care after the government susidy is deducted. People with assets below this amount do not have to pay the balance, the government pays.
Is it ethical to structure your affairs to enable you to qualify for a government funded benefit?
If a Trust is formed and assets gifted for the sole purpose of qualifying for residential care subsidies in Rest Homes then isnt that some kind of avoidance? It means that those people who do not form Trusts to protect their assets are unfairly penalised. It means that people who can afford to pay for their Rest Home Care do not, and people who cant afford to pay for it have to. This is exactly the opposite outcome than that which the legislation originally intended. This is completely unjust and should be remedied. Assets held in Trust should also be aggregated when eligibilty for Rest Home subsidies is assessed.

John Peterson on March 31, 2010 at 1:53 pm

Issues of equity crop up in entitlements to benefits and tax credits right across the board. The challenge for every welfare system is to strike a pragmatic balance between what is effective, fair and administratively workable. Anomalies will always crop up at the margin.

What concerns me about Regulation 9B is that it leaves WINZ a lot of discretion to draw the lines where it seems fit. I don’t see any scope for challenging or appealing this very broad discretionary power. An important (some would say the only) element of fairness is “treating like cases alike”. It is not clear to me that this power is being (or even can be) exercised in this way.

Peter Frawley on April 15, 2010 at 7:28 pm

I agree with John that an important element of fairness is “treating like cases alike”. However, it is very clear this is the antithesis of the current situation in relation to the application of the residential care subsidy.

Take 2 families in an equivalent economic position where the elderly parents – who are both in rest homes – have a family home each valued at say $800,000.

Family A have arranged for the parents’ home to be held in a family trust – their parents receive the full residential care subsidy and their children can expect to inherit the family home.

Family B’s parents own their home directly rather than through a trust – the value of their home is progressively eaten up by rest home charges because they do not receive a subsidy, and their children do not expect to inherit the home.

Family B is effectively subsidising the inheritence of Family A’s children. This is a massive horizontal inequity.

Whatsmore Family C who are low wage workers and life-long tenants in Mangere are also subsidising the inheritence of Family A’s children through their taxes.

Overall a very unfair situation.

John Peterson on April 22, 2010 at 10:15 am

Peter’s analysis of “fairness” is fine as far as it goes – the additional and, I think, objectional element in the current law is that it is the Chief Executive who decides whether to “claw back” these additional assets.

The current law provides not only for different results in relation to Family types A, B and C. It also provides that two type A families could be treated differently from each other – depending on the mood of the Chief Executive (or, in reality, some beauracrat at MSD).

The current state of the law is not just unfair – it is not transparent, it undermines certainty of outcomes and hands a significant amount of taxing discretion to unaccountable officials.

If fairness is important (and we are never all going to agree on what is “fair”) then we should have a clear set of rules at the outset which we can apply our “fairness” criteria to.

Jennifer Dalziel on April 29, 2010 at 7:23 am

The problem here is not a superficial problem of fairness in application of the rules. the problem that the rules are not only inherently unfair they unjust. So lets not quibble about the application of unjust rules lets request that the whole system be overhauled as it is obvious no one has any faith or belief in it including the “unaccountable officials”

Carol Hewitt on June 12, 2010 at 12:37 am

My father has just been admitted to a dementia care unit .He has a house valued at around $500k and a small amount of savings. Is there a maximum he should pay for this or is the sky the limit ?

Jennifer Dalziel on June 19, 2010 at 7:49 am

In reply to Carol… I am not quite sure what you mean here.
A maximum he should pay for his care or for ownership of his dementia care unit?

The government only subsisdises care. At present you are allowed to keep $180,000 of assets to obtain the full subsidy. Any more assets than that and you get only half the subsidy and you must pay the balance out of your assets.
Assets in trusts are excluded from the calculation… so based on this, If your father uses trust funds to buy his unit, he will have to pay full price for his care until his savings are gone then he will receive full susidy. Alternatively he could buy the unit with his own funds if he has enough and then he would receive the full subsidy.
My opinion is that that is immoral and really the Trust should buy his uNit by selling the house and leaving the balance of the money in the Trust (at least the family will get that).
Dementia people with no Trust lose all their assets until $180,000 is left.
However assets placed in Trusts in the last 7 years can be clawed back into the personal asset calculation.
This whole system is ridiculous and needs overhauling.

Toni Wilson on August 31, 2010 at 11:45 am

It was great to find your web-site as we are in the middle of WINZ looking at Mum’s (my mother-in-law) ‘Residental Care Sudsidy’ at present, and what a mess!
It starts with Mum being moved down to Nelson from Auckland to be with us because of ill health. Mum’s house was sold in November 5th 2005 for $236,000( less land agent fees). $100,000 was given to us to build Mum a 1x bedroom cottage on our yard. Cost to build cottage was $98,000 not including drapes, stove, fridge, concrete etc. During this time I have cooked all her meals, done her washing, cared for her, monitered her medication, Doctor’s visits etc. Mum suffers from high Anxeity and wouldn’t leave the house so I did alot for her, BUT she did receive ‘Home Care’ of 2 visit per week until recently where it went up to 5x visits per week for 1x hour per day. Mum went into a Rest Home 4weeks ago as she now needs full time high level care which I can not provide for her. Doctors do not believe she will be with us much longer.
Now WINZ are adding to our stress and grief.
This is where it gets messy……………WINZ are saying that the $100,000 is a loan and that Mum should have been getting an income from that money and will therefore be classed as an asset. They would like for us to be paying Mum back interest to cover her care. We can not say that it was a gift as while Mum was receiving a high level of care from me she was also receiving ‘Home Care’ which makes any gifting null and void.
We can not let out the cottage to help with our costs as that is then classed as Mum’s income, even tho everything is in our name and on our property. We are a one income family with 3x Boys!
Mum has also recently given away $84,000 to her daughter because she asked for it.
Left was approx $4,000 which has all been paid to the ‘Retirement Home’ while WINZ decide the outcome.
Other monies has been spent by Mum over the last 4.5 years on LCD’s, Beds, Outdoor funiture etc etc
BUT WINZ still take the whole $236,000 into account. There is nothing left!
They are wanting for us to to pay Mum interest and also cover the rest of Mum’s Care, as she is above the $200,000 threshold for assets.
People NEED to prepare for their parents or family members, possibly going into ‘Homes’ later in life well before it may happen.

Any advice would be greatly appreciated (-:
Thank you

K Anderson on September 3, 2010 at 2:05 pm

My mother in law is in a resthome, and has been paying her way since she went in some six years ago.My husband has Enduring Power of Attorney, and is now in the position of selling her home unit, which has a sale value of around $200,000. The money in her bank acccount is almost at zero, and we applied for residential loan, but were turned down, as in past five years, she has gifted $32,500 more than allowable. Even if the unit realises $200,000, WINZ tells us that theoretically, we would have assets of $232,500. We currently owe the resthome in excess of $11,000, which would come off the $32,500, still leaving us over$21,000 over the threshold. In reality, we would only have actual cash left, after the $32,500 comes out, of $167,500. At what stage would be eligible for a loan? No-one so far has been able to give us a definitive answer. Any help much appreciated.

Jennifer Dalziel on October 14, 2010 at 9:37 am

I have just noticed the 2 questions here. I have not visited this blog for a while… earthquake and everything.
I will think about your situations and tell you what I think… the whole situation re resthomes and subsidies is a huge mess and you should be lobbying your MPs to get it changed as it is very unfair on people like you.
I will be back to tell you more soon. In the meantime you could talk to your lawyer. I dont really understand what you mean by “gifted $32,500 more than allowable” was the gifting not overseen by a lawyer?

Jocelyn Limbrick on November 19, 2010 at 12:55 pm

Can somone please tell me what happens if a person has over the $190.000 and goes into resthome say has $225.000 do they have to pay for partial care only until their assets come down to $190.000 or do they continue paying forever.

simon ogilvie on January 10, 2011 at 3:46 pm

has anyone had an equiry fromWinz about the reasons why a party soldthe matrimonial home to trust and then completed the gifting programme when making application for the rest home subsidy

Jennifer Dalziel on May 9, 2011 at 2:32 pm

Type your comment here.
I have a solution to the whole problem of Trusts and Rest Home Subsidies. I think the current situation should be reversed. Those who have transferred their assets to Trusts should pay the full price for rest Home Care and those who have not should receive the full subsidy. that way the intention of the law could be realised. the rich should pay and the poor should not.
Problrm solved

Jennifer Dalziel on May 9, 2011 at 3:50 pm

Type your comment here.
I would likde to reply to Jocelyn Limbick Nivember 19 2010.
Once the elderly persons asstes are down to $200,000 then they receive the subsidy because they are under the threshold to pay

Jennifer Dalziel on May 9, 2011 at 3:53 pm

Type your comment here.
Reply to K Anderson September 3 2010 Once you have paid the $32500 that you are over the threshold then your mother will be eligible for the subsidy. as your assets will be worth $200000 once the $32,500 over gifted has been taken into account.
Sorry for late reply… many earthquakes later I am coming up for air.

Jennifer Dalziel on May 9, 2011 at 3:56 pm

Type your comment here.
Reply to Toni Wilson August 31 2010. Hi Toni… many earthquakes later I am back on this site. Your situation raises many complex issues. I think you need to talk to a lawyer about this as it is beyond me I am an accountant no a lawyer. Sorry to not be more help

Aylton Jamieson on July 26, 2011 at 4:57 pm

I think that things are not quite what everyone assumes them to be, judging from some of the comments made so far. WINZ has a number of powers when it undertakes a means assessment of assets.

The first is that it adds back gifts made within five years prior to the date of the means assessment. There is an exemption from that for allowable gifts (which are specified in regulations).

The second set of powers are those referred to by John Peterson in his initial comment – amongst other powers, these include section 147A of the Social Security Act 1964 and Regulation 9B of the Social Security (Long-Term Residential Care) Regulations 2005. Those regulations were (broadly) passed in 2005 (and modified to refer to 147A which was enacted a year later.) Under regulation 9B where a person has either “gifted” an amount greater than $27,000 then this additional amount is regarded as deprivation by the person and is added back. Under section 147A (which is the empowering provision for clause 9B) the Chief Executive has the discretion to include that excess amount within the means assessment. Under section 147A that provision does not apply to “exempt assets” which include an interest in a residential dwelling which is the principal place of residence of the relevant person’s partner, spouse or dependent child. In the case of a house being transferred into a trust, the house is usually sold to the trust and a debt back is given to the previous owners. The normal process is that for gift duty purposes, the couple would jointly debt forgive $54,000 per annum. Accordingly, in a “normal” trust situation, WINZ is saying to those people who have settled their trust and have forgiven the $54,000 per annum in respect of the debt back on their house, “you have exceeded the $27,000 per annum limit imposed under the SSA and accordingly that additional $27,000 you jointly forgave will be added back when we undertake a means assessment for residential care subsidy purposes”. So contrary to Ms Dalziel’s expectation that trusts are the panacea for all rich people, in this instance the fact that the house has been sold to the trust, and the debt is progressively forgiven, that debt forgiveness results in the amounts being added back for means assessment purposes.

In broad terms I don’t have an issue with what section 147A is seeking to do (i.e. that where people have sufficient funds to pay for their residential care, then they should pay for that care themselves). However, what I find egregious about these particular changes is that:

1) We have had instances where WINZ is applying these back to 1994 – anecdotally we have heard of them asking people to supply their records back to 1975 when the legislation for this was only passed in 2005.

2) It was/is common knowledge that the gifting threshold for Gift Duty is $27,000 per person or $54,000 per couple. By setting the threshold for regulation 9B at $27,000 per couple, and applying this on a backdated basis, so that it would apply to debt forgiveness occuring prior to the passing of the legislation, this change would obviously catch a large number of couples who had forgiven $54,000 each year for gift duty purposes and hence prevent them claiming a residential care subsidy.

3) Under sections 146 and 147A of the SSA, these provisions do not apply to “exempt assets” which include an interest in a residential dwelling that is the principal residence of the person’s spouse, partner or dependent child. Accordingly, a means assessment does not take into account the house of a couple which qualifies as “exempt assets”. Accordingly Parliament had signalled that it did not intend that a couple would have to sell their house (in which they were living) before one of the couple would qualify for a residential care subsidy. However, by requiring a couple to bring the proceeds of the house sale into consideration (by virtue of the debt forgiveness), this can force the trust to sell the house in order to pay for the residential care. Effectively the remaining partner is forced out of the home. So contrary to Mr Frawley’s rant – the person that puts their house is required to sell it a pay the residential care costs. The person who does not sell their house gets to treat it as an exempt asset and gets the residential care subsidy.

4) The outcome of the current approach adopted by WINZ is capricious – if the couple had used the Public Trustee approach of gifting an interest of $27,000 per annum (see Begg v CIR (2009) 24 NZTC 23,473 (CA)), then that would have amount to a gift of an “exempt asset” and would not have been subject to section 147A. People who adopted the Public Trustee template would be able to claim a residential care subsidy, even though the economic outcome is the same as the couple that took the sale and debt back route.

5) The Chief Executive of the Ministry of Social Development in section 147A(1) has a discretion whether to include any income or property that he considers people have deprived themselves of in a means assessment. Where it is clear that Parliament did not intend that a person should forfeit their house before a residential care subsidy would be available, you would hope that the Chief Executive would have taken that into account when exercising his discretion. Under the wording of regulation 9B there appears to be no residual discretion and that anything caught with the wording of those regulations is automatically deemed to be deprivation of an asset. This does not seem to be in accord with Parliament’s intention.

6) Where WINZ is making a significant change such as this, (particularly when this change is being made by way of regulation, which does not receive as much public scrutiny as parliamentary legislation) it has an obligation to make those changes public to people who are likely to be affected by them. WINZ has waited five years before it has gone to the public (and their advisors) to tell them what is happening, when this should have been announced or publicised before WINZ commenced applying it to residential care applicants.

Stephen Tomlinson on August 2, 2011 at 7:13 pm

Further to Aylton Jamieson’s comments, I note that:

1. Section 147A of the Social Security Act 1964 only kicks in if either the person applying for a means assessment, or their spouse or partner, has deprived themselves of income or property. The commas are important folks.

2. Regulation 9B of the Social Security (Long-Term Residential Care) Regulations 2005 defines what constitutes “deprivation of property or income” for the purpose of section 147A. The definition, however, is not exhaustive (i.e. “instances of deprivation of property or income include, but are limited to …”).

3. Regulation 9B does not provide for gifts made by a person to be aggregated with gifts made by their spouse or partner to determine whether the $27,000 threshold has been exceeded.

It seems to me that you apply Regulation 9B separately to the applicant and their spouse / partner to see if the applicant and/or their spouse or partner has deprived themselves of property or income and, if so, the quantum of that deprivation. Any deprivation by the applicant and their spouse / partner is then aggregated and added back for the purpose of making the means assessment.

In the light of the above, if an applicant keeps within the $27,000 gifting limit, and so does their spouse / partner, then no deprivation should result for the purpose of section 147A.

I appreciate this does not accord with MSD’s view.

Robynne Sutton on November 1, 2011 at 8:49 pm

My Father is currently being assessed (since May!)

Stephen I think you mean “are not limited to..” In the definition of “deprivation of income”. And the perfect example here is that monies paid to my father by a family trust in the previous year are being included as income (deprived).
Has anyone legally challenged if non-payment of monies by a trust to an applicant can be deemed to be “deprivatoon of income”?

Simon G on February 2, 2012 at 8:28 am

Both of my parents are in residential care which is being paid for by their residential care loan.

In the first year they were in the rest home my brother in-law moved into the family home to look after it and do some minor maintenance. (it was in quite a state). No rent was paid. For the past 12mths I have lived in the home with my family and we have rennovated the interior ourselves. Again, no rent was paid. And now I have a brother returning from the UK who will also occupy once we leave…again at no charge.

The question is: is there any obligation for my parents to charge rent on the family home. If they don’t does it constitute income deprivation? They will reach the asset threshold for the residential care subsidy in a couple of years and I don’t want any surprises along the lines of ‘…you should have been receiving rental income..’

Thanks.

Anne on April 14, 2012 at 10:53 am

Asuming that parent is on full govt subsidy and legal amount of money still left in accounts. What about money left not in a trust when a parent given children POA. Is there a $ limit to what can be given to rest of family by said children? People talk about gifting but not in a trust so does not apply?

Another Anne on October 5, 2014 at 12:07 pm

My Dad is in care on full subsidy. I am EPOA. Are we able to gift some money to my brother in UK so that he can come out to visit Dad?

linda on August 27, 2015 at 10:45 pm

My mother is 94 and has dementia. With govt assisted carers she is still living in a home gifted within the law to her 4 children over 20 years ago. My sister has power of attorney. We expect that she will very soon be in residential care … she is having another assessment in a couple of months. We expected that she would be getting the govt residential care subsidy.
Now we have just found out that she is going to inherit $NZ500,000 from her sister-in-law who has died. Am I correct in assuming that she can keep approx $200,000 cash that is exempt from the income test and can gift $27,000 per year spread over her five children. I would like to know if there is anything legally that can be done to further protect this inheritance before it is put into her account in Nov. Any advice would be appreciated

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