The population of New Zealanders aged 65 and over is projected to increase from 15% last year to over 25% by 2068. The Residential Care Subsidy (“Subsidy”) is government-funding to assist those living in a rest home or hospital-level care pay for their residential care fees. This article aims to assist people who wish to understand how their asset planning may affect their eligibility for the Subsidy.
The Ministry of Social Development (MSD) is responsible for assessing applications and determining whether an applicant qualifies for the Subsidy. When considering an application MSD will conduct a financial means assessment to determine whether the applicant qualifies under the prescribed eligibility thresholds.
The financial means assessment is two-pronged:
Firstly, MSD will assess the value of assets owned by the applicant (“the asset threshold”). If the value of the applicant’s assets is under the asset threshold, then the applicant qualifies;
Secondly, MSD consider their income . This is to determine the amount that a person is required to contribute to the cost of their care.
This article focuses on the asset thresholds. Currently, these are:
If an applicant is single, or has a partner also in care:
Up to the value of $224,654.00 including the value of the family home and vehicle.
If an applicant has a partner who is not in care:
Either, up to a value of $123,025.00 excluding the value of the family home, vehicle, pre-paid funeral up to $10,000 and various other exempt assets;
Or, up to a value of $224,654.00 including the value of the family home, vehicle and all other assets.
The choice between a or b is the decision of the applicant.
If the applicant’s assets exceed these thresholds, they will be responsible for paying their own care fees until their assets fall beneath the threshold, at which point they may wish to reapply. The Subsidy does not operate on a sliding scale: an applicant either does or does not qualify.
MSD will consider the history of an applicant’s gifting of assets (“gifting”) to assess whether or not it considers the applicant has engaged in “excess gifting” to deprive themselves of assets with the purpose of qualifying for the Subsidy.
Gifting includes the common usage of the word and also the forgiveness of debts, including to a Trust. If an asset, such as a family home, is transferred to a Trust, the Trust owes the transferors the value of that asset. This debt is “paid off” without exchange of funds, but rather by forgiveness of the debt.
The MSD gifting thresholds are:
Within the five years before applying for the Subsidy (“the gifting period”) up to $6,000.00 per year per couple, or, in the case of a single person, per person.
In the period prior to the gifting period, a couple or single person may gift up to $27,000.00 per year.
If an applicant has transferred an asset to a Trust and has not completed forgiving the debt, the outstanding value is considered a personal asset. Furthermore, if an applicant has gifted in excess of the gifting thresholds, the value of the excess gifting over the gifting threshold may also be considered a personal asset.
The Residential Care Subsidy regime, including the permissible asset, income and gifting thresholds, is prescribed by regulations which are subject to change. Accordingly, there is no guarantee that any asset planning within the current permissible limits, would mean an applicant qualifies for the Subsidy.
There are many good reasons for settling a Trust but qualifying for a Subsidy may not be one of them. However, if a would-be applicant has settled a Trust, it is advisable for them to consult their lawyer review and discuss their asset planning in terms of the Subsidy regime.