Health prob­lems can up­set plans

Auckland City Harbour News - - NEWS -

‘‘Life is what hap­pens to you while you’re busy mak­ing other plans.’’

That’s a John Len­non lyric and it gets truer the longer you live.

In most lives plenty hap­pens to put kinks in a per­son’s life­time money plan, in­clud­ing how much wealth they are able to leave to the next gen­er­a­tion.

In later life the hap­pen­ings tend to be health-re­lated and they can rapidly drain wealth.

The older we are the higher our med­i­cal costs tend to be – in­clud­ing health in­sur­ance pre­mi­ums – but the health event with the po­ten­tial to take the big­gest chunk out of the kids’ in­her­i­tance is be­com­ing so frail that res­i­den­tial care is needed.

For­tu­nately, not all of us need res­i­den­tial care later in life and many who do don’t need it for a long time.

I say for­tu­nately be­cause ex­pen­sive.

In Auck­land, for in­stance, the max­i­mum a per­son re­quir­ing care can be re­quired to pay to rest homes which have con­tracts with the state is just shy of $910 a week, or $47,300 a year. That’s the start­ing point. Many rest homes in­vite po­ten­tial res­i­dents and their fam­i­lies to pay more to se­cure more pleas­ant rooms, and other op­tional ex­tras and may seek to get those fam­i­lies to sign per­sonal guar­an­tees that the fees be paid.

It’s a prac­tice that makes some peo­ple an­gry but rest homes are busi­nesses and they be­lieve the Gov­ern­ment sets the max­i­mums too low for them to make a fair re­turn so they are driven to such tac­tics.

In many cases, the state does foot the bill for the care but down the years gov­ern­ments have tight­ened

it

is the el­i­gi­bil­ity sub­si­dies.

Now they re­quire much of a per­son’s wealth to be spent before the tax­payer will start pay­ing.

As fi­nan­cial ad­vis­ers Stu­art + Car­lyon put it in a re­cent news­let­ter to their clients.

‘‘The clear mes­sage is that you have to rely on your own money as the thresh­olds make it dif­fi­cult to be el­i­gi­ble. You will be both as­set and in­come tested.’’ The as­set test works like this. For a sin­gle per­son go­ing into long-term res­i­den­tial care, the state will not be­gin pay­ing the rest home’s fees un­til their to­tal as­sets have been re­duced to $218,423.

For a cou­ple where only one is in

for

rest

home long term care there is some flex­i­bil­ity.

They can choose the as­set thresh­old of $218,423, or to­tal as­sets of $119,614 not in­clud­ing the value of their fam­ily house and car.

Those thresh­olds, which were once ris­ing at $10,000 a year, are now lifted by the rate of the Con­sumer Price In­dex mea­sure of in­fla­tion thanks to the cur­rent Gov­ern­ment’s crack­down on spend­ing.

Once peo­ple dodged the tests by hid­ing wealth in trusts. Those days are gone. Work and In­come now look to see whether the per­son in need of care has made de­ci­sions to ‘‘de­prive’’ them­selves of as­sets, such as gift­ing them to a trust and take that into ac­count for their meanstest­ing.

The test ig­nores peo­ple hav­ing ‘‘gifted away’’ $6000 a year (in each year from July 1, 2011), and $27,000 a year before that, pro­vided they fol­lowed the now-scrapped for­mal an­nual gift­ing pro­ce­dure.

The im­pact on wealth of res­i­den­tial care can be big and in some cir­cum­stances can seem un­fair.

Take, for in­stance, a cou­ple where one per­son gets de­men­tia and re­quires care for many years.

They may have scrimped and saved for a com­fort­able re­tire­ment but end up with a much-re­duced nest egg to sup­ple­ment their New Zealand Su­per with.

It’s one of those things that hap­pens, but for­tu­nately, not to ev­ery­body.

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