Residential care subsidies
Will You Qualify for a Residential Care Subsidy?
The current combined total asset threshold for an applicant with a partner who is not in care is either:
- Threshold A - $218,973 (including house and car);or
- Threshold B - $ 119,915 (excluding house and car).
If the applicant does not have a partner or has a partner who is also in care the combined total asset threshold is Threshold A - $218,973.
There are a number of assets which are not included in the financial means assessment, such as:
Household furniture and personal belongings;
Up to $10,000 of pre-paid funeral expenses per spouse;
The home and car if Threshold B is chosen.
The applicant’s home may be an exempt asset if the applicant’s partner still lives in it and if it was their “principal place of residence” before the applicant entered care (refer to the asset thresholds above). This can include a home owned absolutely, a life interest in a home or a licence to occupy a home (e.g. in a retirement village).
What if your Home is Owned by a Trust
If you have sold your home to a trust in return for a debt back then the debt asset will be treated as your asset and will not be considered your “exempt home” under Threshold B. This is because the house has been sold and is owned by another party. Ideally this debt should have been gifted to the trust in full (at the allowable rates – see below) prior to applying for a residential care subsidy in order to qualify.
Can I Give my Assets Away? - Deprivation of Property and Income Rule
Unfortunately, the abolition of gift duty back in 2011 did not affect the Deprivation of Property and Income Rule under section 9B of the Social Security (Long term Residential Care) Regulations. Under section 9B gifts made in excess of $27,000 per annum may be considered as deprivation of property and will be treated as the applicant’s asset.
The question of whether this threshold applies to individuals in a relationship jointly or separately was addressed in the Court of Appeal decision Bridgford v Chief Executive of the Ministry of Social Development. In this decision the Court of Appeal confirmed that “The position in relation to the assets of spouses or partners and any gifting by them is therefore clearly stated. When individuals in relationships are seeking entitlement to means tested state assistance they are to have their resources considered together as a couple…. rather than as individual persons.” Therefore any gifts in excess of $27,000 per year made by the applicant or their partner could be included in the asset pool. Likewise any unforgiven debt that remains outstanding from a person or a discretionary trust may be included in a means assessment and the Ministry could require the applicant to recall the debt or demand interest.
Similarly, selling your assets for less than market value and giving interest free loans to children may also be considered deprivation of property or income and could be included in your means assessment.
We note that the gifting threshold is reduced to $6,000 per year during the 5 years immediately prior to a means assessment.
Help! I have Excess Gifting
If you have made gifts in excess of $27,000.00 per annum to a discretionary trust you should seek the advice of a trust expert to review the objectives of the trust and whether it is appropriate in the circumstances to distribute the trust assets back to the settlors.
Particularly, this is relevant where the trust owns the family home and/or assets that would be exempt under Threshold A or B if they were owned in a personal capacity.
The Dangers of Joint Tenancy
Owning your property as Joint Tenants is dangerous as your share of the property passes to your partner automatically on death. This makes your share susceptible to:
· relationship property claims in the event of re-partnering; or
· claims by future children of your spouse; or
· claims by creditors of the surviving spouse;
thereby diluting your share of the property that your children would have received.
Joint tenancy also means that the entire value of the property will be treated as the asset of the surviving spouse when assessed for a residential care subsidy under Threshold B. Instead, you can protect half of the value of your property by registering ownership on the title as tenants in common in equal shares. You could then provide a life interest of your share of the property to your partner in your will which allows your partner to occupy the entire property until he or she dies.
A change to tenancy in common should be undertaken as soon as possible.
A means assessment for a residential care subsidy will also assess your ability to earn “income”. Any income that is generated or could be generated (notional income) from your assets, or assets that you have settled on a trust, should be paid towards your residential care costs prior to any assistance from the government.
Feel free to contact Peter O'Dea, Partner of Helmore Ayers Lawyers, for a no-obligation chat about how this relates to you on 03 366 5086 or use the contact form below.
Lawyers | Christchurch
Phone 03 366 5086
38 Birmingham Drive, Riccarton, Christchurch 8440
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