I put my house into a family trust.  Can the government use that against me if I go into a rest-home and want to apply for a Residential Care Subsidy?

This is a pretty simple question, yet it does not yield a simple answer.  The initial answer is, it depends.

When someone (the donor) puts personal property into a trust, the property is usually sold to the trust, with the purchase price being loaned to the trust by the donor.  The trust then owes that value to the donor as a debt.  It is normal for the debt to then be forgiven by the donor over time (commonly known as ‘gifting’).  When gift duty existed, the maximum sum which could be gifted each year, without duty, was $27,000 per person.  Gift duty was abolished in 2011, but that doesn’t mean that you can gift large sums without consequences.

If you wish to maximise your opportunity for eligibility for the government’s Residential Care Subsidy (RCS), provided by the Ministry of Health, you need to understand the Ministry of Social Development’s (MSD) policy in relation to financial means testing and, in particular, the allowable limits on disposal of assets in any 12-month period.  Any property disposed of in excess of the allowable limit is considered to be a “deprivation” of assets and can be counted as a personal asset for the purpose of the means test.

Who can get a RCS?

You may be able to get a RCS if you:

  • are aged:
    • 65 or older, or
    • under 65 and have a partner, or
    • 50-64 and single with no dependent children
  • are assessed as needing long-term residential care in a hospital or rest home
  • need this care for an indefinite length of time
  • are receiving contracted care services.

It may also depend on:

  • any money or assets you and your partner (if you have one) have
  • how much you and your partner (if you have one) earn.

Asset limits

If you’re aged 50-64 and single with no dependent children, you’ll automatically meet the asset test.

If you’re 65 or older, your and your partner’s (if you have one) total assets must be $273,628 or less. If you have a partner who is not already in long-term residential care, you can choose whether the total value of your combined assets is either:

  1. $ 149,845 or less, if you exclude the value of your house and car, or
  2. $ 273,628 or less, if you include the value of your house and car.

You can exclude your house under option 1 if it’s the main place where your partner, or dependent child, lives.  This means that if you don’t have a partner or dependent child living in the house, you must include the value of the house in your assets and the option 2 asset limit applies. 

If your house is in a trust and any debt owed to you from the transfer has been fully gifted off, the value of the house is not part of your combined assets.  Conversely, any debt still owed to you by the trust will form part of your personal assets. 

Assets that aren’t included:

  • pre-paid funeral expenses for you and your partner of up to $10,000 each, if they’re held in a recognised funeral plan
  • personal belongings such as clothing and jewellery
  • household furniture and effects.

Assets gifted in the last 5 years

You are entitled to gift up to $7,500 of assets each year for the last 5 years from when you apply for the RCS.  $7,500 is the total amount between you and your partner (even if they’ve died).

Assets gifted more than 5 years ago

You are entitled to gift up to $27,000 of assets each year for the years longer than 5 years ago (from when you apply for the RCS).  $27,000 is the total amount between you and your partner (even if they’ve died).  This often will pose an issue as, in many cases, a husband and wife, as settlors of a trust, have gifted $27,000 each per year for a number of years.  This means that there has been excess gifting of $27,000 per year and MSD can take that into account for asset testing.

How far back does MSD look?

There is no simple answer to this.  As we said at the start, it depends.  What we can say is that anything in excess of the above limits can be looked at.  If it is deemed that there has been a deprivation of assets, there is a good chance that the value of that deprivation will be included in the calculation of your assets. 

What if I don’t qualify for a subsidy?

If you’re 65 or over and your assets are above the threshold because you own your own home, you may be able to get a Residential Care Loan. This will help with the cost of your care.

But wait, there’s more . . .

If you meet the asset test, that is just step 1.  You will then be subject to an income test.

Income limits

Your income must be below specified limits. How this is worked out is different for each type of income.

What’s included as income

  • New Zealand Superannuation, Veteran’s Pension or any other benefit.
  • 50% of private superannuation payments.
  • 50% of life insurance annuities.
  • Overseas Government pensions.
  • Contributions from relatives.
  • Earnings from interest and bank accounts.
  • Investments, business or employment.
  • Income or payments from a trust or estate.

MSD requires more information if you have or your partner has ever:

  • transferred assets to a trust
  • been the settlor, trustee or beneficiary of a trust or estate.

What’s not included as income

  • Any money your partner has earned through work.
  • Income from assets when the income is under:
    • $1,188 a year for single people
    • $2,376 a year for a couple when both have been assessed as needing care
    • $3,564 a year for a couple where one partner has been assessed as needing care.
  • A War Disablement Pension from New Zealand or any other Commonwealth country.

No allowance for gifting of income

Where income generating assets (eg shares, rental properties etc) have been gifted to a trust, MSD can look at this, regardless of how long ago it occurred.  While there is an allowance for gifting of assets, it seems there is no allowance in relation to gifting of income.  We are aware of an applicant who was denied a RCS because 30 years previously she had gifted income earning assets to a trust.  The simple lesson here is that if a trust is to acquire an income-earning asset, it needs to purchase it and preferably from a source other than a settlor.

Policy considerations

The Residential Care Subsidy is intended for those who would otherwise be unable to afford to pay for rest-home care.  It can readily be seen that taking any action to deliberately deprive yourself of assets and income in order to qualify for a RCS runs counter to this.  Of course, there are other reasons for a trust to be settled, but if there has been excessive gifting of assets or gifting of any income earning assets, an application for the subsidy could well fail.   The Ministry has indicated it will be paying close attention to dispositions of property made by an applicant to their family trust on the basis that if the applicant has other means of funding their rest-home care then these resources should be used before seeking financial assistance from the government.