Residential Care Subsidies (RCS)
It is never too early to start planning for your retirement. Often, it is those who plan early and adapt overtime that reap the benefits in the long term.
If assessed as requiring long term residential care in a hospital or rest home, one may be eligible for the RCS, which is funded by Work and Income at the Ministry of Social Development (MSD). The RCS is paid directly to the care provider and can assist in covering the costs payable for such care. At times, residential care may be the most appropriate – or only – option.
Complexities in this area of law include the MSD tending to take a strict and stringent approach in their assessments and legal advice being very circumstance specific.
Eligibility depends on a range of factors including:
1. Being formally assessed as requiring long term residential care in an approved facility. In our experience, this generally means that you have ongoing high needs and cannot be safely cared for in your own home;
2. Receiving contracted care services;
3. Being aged 65 or older or 50 to 64 and single with no dependent children;
4. Meeting the asset thresholds, which we discuss further below; and
5. Meeting the income threshold to determine how much you will have to contribute towards the cost of your care from any regular income you receive, including your pension.
Assessment of Personal Assets against Asset Thresholds
MSD assesses the applicant’s assets against the stipulated asset thresholds to determine the applicant’s ability to pay for care. These thresholds tend to be increased annually in July. As of 1 July 2022, the asset thresholds for people aged over 65 are:
If the applicant is single or widowed: $256,554.
If the applicant and their partner both require care: $256,554 between the applicant and their partner.
If only one partner requires care:
1. $140,495 (excluding the value of the house and car) between the applicant and their partner; or
2. $256,554 (including the value of the house and car) between the applicant and their partner.
Note that the Residential Care Unit tend to use the most advantageous threshold for the applicant in their assessments.
If the applicant is in a relationship, any assets owned jointly and individually are included in the means assessment. This is the case even if you have a contracting-out (“pre nup”) in place.
There are some assets exempted from the assessment, including some pre-paid funeral costs.
Assessment of Personal Income Against Income Thresholds
In terms of gifting of income (eg gifting assets that generate income such as rental properties, shares etc), MSD can look as far back as they want to. There appears to be no thresholds in relation to the gifting of income. However, this is not to say that there are no consequences of doing so.
There has been a circumstance whereby an income generating asset that was gifted to the Trust 30 years ago contributed towards the MSD declining a RCS application.
Trusts & Allowable Gifting
Previously, part of the reason why Trusts were likely settled was potential eligibility for the RCS if the scenario presented itself. To contribute towards possibly achieving eligibility, the family home was traditionally gifted into the Trust at rate of $27,000 per year per person supported by way of Deed of Gift and Statements filed before Inland Revenue.
The Courts have provided clarification on the rate of allowable gifts. The previous understanding was that $27,000 could be gifted by an individual per annum and, therefore, $54,000 per couple per annum. The Courts clarified that WINZ can determine their own rates. As such, WINZ now allows gifts of $13,500 per person per annum and, therefore, $27,000 per couple per annum with no clawback. This was backdated, directly impacting many Trusts with gifting regimes based on the previous understanding.
This has partly resulted in MSD “looking behind” the ownership structure of an applicant’s assets to determine whether the applicant has purposely deprived themself of assets to qualify for the RCS. Any gifting over allowable annual gifting rates is likely to be viewed as a deprivation of assets and will likely be “clawed back” which means the excess would form part of the applicant’s pool of personal assets. Furthermore, the approach that MSD tends to take is that applicants must request support from the Trust. Therefore, Trusts should consider assisting with the costs of care. If a Trust does not assist with costs, trustees should be able to reason this decision with supporting evidence.
In terms of current allowable gifting, in the 5 years prior to the date of the application, $7,000 can be gifted per year per couple. This means a total of $35,000 for this 5-year period. If the applicant’s partner applies at the same time, $70,000 will not be counted. As previously indicated, $27,000 can be gifted per year per couple for years prior to the 5-year period.
Allowable gifting rates have not increased in line with increasing house prices. This has resulted in, what the MSD would consider, a permissible gifting regime taking longer to complete. This has significantly reduced the benefit of establishing a Trust for achieving potential eligibility for the RCS.
Moreover, it is prudent to consider practicalities when assessing Trusts in relation to gifting. Questions such as the likelihood of long-term care, the average length of time the applicant may reside in residential care, and the cost-benefit of administering Trust’s for potential eligibility should be asked.
What We Are Seeing
Where a Settlor has an amount owing to them by their Trust and where that amount, together with assets owned in their personal name, is under the WINZ thresholds, options could be to do nothing or to reduce the gifting amount.
Where “excess/extraordinary” gifting has occurred over the Trust’s gifting regime, and the applicant’s other combined personal assets likely puts them above the stipulated thresholds, an option could be to wind up the Trust and transfer the family home back to the name(s) of the applicant(s).
Where one is relatively young and has the ‘gift’ (pun not intended) of time, annual gifting could be possible at a rate of $27,000 per couple per year, depending on the total value of the debt.
Nowadays, if a gifting programme were put in place, assets should generally be sold to the Trust at full market value, the sale price owing should be left as a debt, and the debt should be reduced by $27000 per couple per year. However, given the usual practice nowadays of high-value assets being contributed into Trusts, it is often futile to engage in gifting programmes. The value of having Trust assets fully gifted in could as seen as more desirable for other purposes.
Record keeping is vital. There should be records of the sale, Deed of Acknowledgement of Debt, annual gifting, and what was used to establish the market value such as a report from a registered valuer and/or local council rates assessments.
Assets that are gifted into a Trust and how the assets are gifted largely depend on the reasons for having the Trust in the first place. These days, there is usually more than one reason for having a Trust. Rationales for having a Trust can provide a strong guide for whether there should be a gifting programme.
How We Can Help
Regardless of your age or stage, considering the ownership structure of your assets could be beneficial if you or your partner require care in years to come. We often see poor forethought resulting in financial strain and additional stress placed on loved ones at an already difficult time. Proper planning is critical and requires a comprehensive review of your affairs to determine what is most appropriate for you in your individual circumstances.
If you require further advice on the RCS and/or the advantages and disadvantages of a Trust for your circumstances, please contact one of our team members.