When buying or owning property with someone else, it is easy to focus on the practical details and overlook how the ownership is recorded. However, the way a property is owned can have important consequences later on, particularly when it comes to estate planning and what happens after an owner passes away.
The Residential Care Subsidy: Planning Today for Tomorrow’s Care
Planning for long-term residential care involves more than health considerations, with asset ownership, trusts and gifting potentially affecting eligibility for financial assistance. In this article Mia Paintin outlines how the Residential Care Subsidy works and why early estate planning can be important for future eligibility.
For many families, long-term residential care raises difficult health, lifestyle and financial decisions. The Residential Care Subsidy regime in New Zealand may help meet the cost of care for eligible applicants, but entitlement depends on a financial means assessment and the way assets have been owned, managed or gifted over time.
Understanding the rules before care is needed can make the application process smoother and reduce the risk of unexpected issues arising or failed expectations. In particular, estate planning, trusts, gifting, life interests and relationship status can all affect eligibility.
Applying
The process begins with a Needs Assessment and Service Coordination assessment to confirm whether long-term residential care is required. Assuming that long-term care is required, the focus then shifts to whether the applicant meets the financial means assessment which in turn requires full and frank disclosure of the applicant’s financial circumstances, supported by relevant records such as bank statements, property and vehicle valuations, trust documents, gifting records and evidence of assets sold or transferred over the years.
After completing its assessment, the Ministry of Social Development (MSD) will decide whether you qualify and, if so, the level of assistance available. Any approved subsidy is then paid directly to the care provider.
The Financial Means Assessment
When it comes to the financial side of the application, the MSD assesses the assets owned by the applicant and, where relevant, their partner.
The applicable financial threshold depends on a variety of factors including your age, relationship status and whether your partner is also in care.
If you are between the ages of 50 and 64, are single, and have no dependent children, you will automatically meet the asset threshold for the financial means assessment. However, you must still satisfy any other eligibility requirements.
If you are 65 years of age or over and you are either single or you have a partner who is also in long-term residential care, your total assets must be $300,811.00 or less.
If you are 65 years of age or older and have a partner who is not in long-term residential care, you may choose between two different asset thresholds:
Threshold A: $164,731 or less, excluding the value of your family home and car; or
Threshold B: $300,811 or less, including the value of your family home and car.
These thresholds are of course always subject to change. You should always refer to MSD’s website for the current asset thresholds.
Trusts and Gifting affects future eligibility
When it comes to estate planning, the family trust remains a prominent feature in a New Zealander’s estate planning, and the interface (or potential tension) between trusts and subsidy eligibility issues remain an important aspect in subsidy applications.
When reviewing an application, MSD will undertake a careful investigation of the family trust and its operations over the years. In particular, MSD will seek copies of the trust deed (and any trust deed variations), trust’s financial records, gifting details and information about historic arrangements such as life interests in properties. Clear, complete and accurate trust records can make the difference between a successful and unsuccessful subsidy application.
Although MSD may look closely at trust operations, a properly administered trust can still be relevant when planning for future care costs. Early advice is important, as late restructuring is unlikely to resolve eligibility issues. While the MSD continues to make inroads into breaking down the distinction between personally owed assets and trust assets, there is still nonetheless an accepted distinction between the two, hence making trusts still a potentially viable option when it comes to subsidy applications
Another important aspect of estate planning in relation to eligibility for a subsidy is the topic of gifting (and not only in the context of a family trust). There remains a common misconception that the MSD will not look “too far back” into the history of an applicant’s gifting records, but the reality is quite different. The MSD will look back as far as it can and there are many instances where gifting that perhaps took place some 20 – 30 years ago (while well intended), can have a detrimental impact on the application when the MSD is undertaking its financial assessments.
The allowable amount that a person can gift in the context of subsidy applications depends on when the gift was made. Gifts of $27,000 per year is permitted up to five years before applying for a subsidy however this annual amount is reduced to $,8,500 within the immediate five year period before applying. It is important to remember that, for couples, the gifting allowance in respect of the $27,000 limit is assessed as a combined amount, not as a separate allowance for each person.
Planning for Success
Estate planning should take account of more than how assets will be distributed only after death. Trusts, gifting, and asset ownership all may affect future subsidy eligibility.
The right legal advice and careful planning early on (as well as regular estate planning reviews) can have a significant impact on an applicant’s future eligibility for the subsidy. Unfortunately, all too often residential care (and the significant costs that come with that) is considered only when care becomes necessary. By then, earlier estate planning decisions may already have doomed the application to failure.
Because each person’s circumstances are unique, it is essential to seek professional advice early on if you are wanting to set your personal affairs up in a manner which provides you with the best chance of success for a residential care subsidy in the future. Here at Harkness Henry, we have a team of specialists that can assist you successfully plan for your future care so please feel free to connect in with us to start a discussion on this important topic.
This article is current as at the date of publication and is intended only to provide general comments about the law. The rules and criteria for residential care subsidy eligibility can and do change (particularly in respect of financial thresholds). Harkness Henry accepts no responsibility for any reliance placed on the contents of this article by any person or organisation. Please contact the author if you require specific advice about how the law applies to your particular circumstances.
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