In New Zealand, we seem to have a love affair with the Family Trust (or correctly, the Discretionary Family Trust.) It appears that we have more Trusts per head of population than other countries. The Law Commission review on Trust law estimates that there are between 300,000 and 500,000 Trusts in New Zealand.
Over the years, we have met a number of people who have been recommended to set up a Trust to 'protect their assets from residential care subsidy calculations'. What this means is that if they go into a rest home in their old age, they want to keep their own money and get the Government to pay for their care in the rest home.
The moral and ethical questions of this approach can be discussed at length- but that is not the purpose of this article.
Our advice to our clients over the years has been that they should never set up a trust for the purpose of avoiding residential care testing. Yes, there are moral and ethical perspectives to this advice, but our point is simpler.
You can never take an action based on taxation or current legislation positions. These can always change. This has been our philosophy for many years, that you need to have an underlying valid reason for setting up a trust, or choosing an investment. If there are tax benefits or some other means testing related benefit in the future, then that is an added advantage. It isn't a reason for entering into that agreement (Trust or Investment.)
Historically it has been 'believed' that you can 'gift' up to $27,000 pa in assets per person to a Family Trust and that after a pre-determined period of time, those assets no longer belong to you, they belong to a Trust. As a rule of thumb, that period of time has been considered to be 5 years.
However, a recent Court of Appeal judgment Gary-Bridgford-as-Executor-2013-NZCA-410 has stated that this is not the case. The Judgment reinforces the findings of three previous decisions (Chief Executive, Appeal Authority and High Court), that the gifting is not per person for the purposes of avoiding rest home subsidy testing. It was to be $27,000 per annum for the couple, not $54,000.
The judgment refers to the Social Security Act 1964 in it's findings.
Therefore, for people who have been planning their gifting programme, with a goal of being eligible for Rest Home Subsidies, and counting on being able to gift $27,000 pa - it is vital that they go back to the drawing board, and assess their progress, and if necessary get legal advice on how to deal with this situation.
It is useful to note that WINZ state the following in relation to Gifting on their website (this appears to have been updated since this Court of Appeal judgment):
If you or your spouse/partner give away assets,they still may be counted as assets in your financial means assessment.
Gifting of up to $6,000 per year made in the five years before you apply can be excluded from the financial means assessment. This applies to each application for the Residential Care Subsidy.
For example, if both you and your spouse/partner apply for the Residential Care Subsidy then gifts of $6,000 each per year, can be excluded.
Gifts of more than $27,000 per year, per application* made before the five year gifting period, may be added into the assessment.
* For couples, gifting is $27,000 in total – not per person.
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By Carey Church