Health problems can put a kink in planning
‘‘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 it is 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 the eligibility for rest home 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 long term care there is 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 means-testing.
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 nowscrapped 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 NZ Super with.
It’s one of those things that happens, but fortunately, not to everybody.