Beating the aged care means test

Protecting your assets means starting early but success is not guaranteed, writes Rob Stock.

Residential aged care is an end-of-life cost many people have been loath to fund themselves. Paying for rest-home care is a public-private partnership, where the taxpayer covers the cost only if the person needing care is judged to be poor enough to qualify for Work and Income’s Residential Care Subsidy.

So some people find it tempting to keep wealth in the family by using trusts and gifting assets to descendants, leaving the taxpayer to fund their aged care should they ever need it.

Family trusts were once sold as a way of beating means-testing, but these days the taxpayer is no pushover, and it would be a brave trust salesman who made that claim.

The taxpayer is represented by Work and Income, and with an ageing population and growing aged-care population, it’s on the lookout for people who have ‘‘deprived’’ themselves of wealth, and income, and will deny them subsidies.

Not everyone does an end-of-life stint in a rest home, but if they do, the cost is high.

In Auckland, the maximum subsidy for ordinary aged care is $1062.95 a week, indicating the base level of cost for an individual who does not get the subsidy.

The way Work and Income approaches the means test is complex, so Taranaki-based lawyer Paul Franklin from Govett Qulliam says people need legal advice before they start trying to protect their assets.

ACT EARLY

Franklin’s advice is to act early. If you’re looking to rearrange your assets because you are likely to go into care in the next few years, it’s probably too late, he says.

‘‘The longer that a trust has been in existence, and the longer the period between the financial gifting and the time you apply for rest home subsidy, the more likely that Work and Income won’t take the gifting into account when calculating your wealth.’’

That’s illustrated by the case of one 79-year-old who gave away the better part of $400,000 in the five years before going into care.

His case came before the Benefits Review Committee, which hears appeals against Work and Income decisions.

The man had inherited $395,000 from his sister’s estate in 2008.

He then gifted $240,000 of it to his daughters to help them buy a house together, and he moved in giving him a home, care and company.

In 2015, he went into care. His assets had dwindled to just $37,000 compared with the maximum asset threshold for a single person of $224,654 including the family home, though he did not own one.

The threshold for a couple where one is going into care is $123,025 excluding the family home and car, or $224,654 if both the house and car are included.

The family argued the man hadn’t deprived himself of wealth, but had used his money to provide himself with care and a home for five years.

ASSET DEPRIVATION

The 79-year-old lost because gifts made in the five years before a subsidy application ‘‘must’’ be included in the means assessment of assets, Work and Income says.

During this ‘‘gifting period’’ it is possible to give away up to $6000 each year, without it being included in the means testing.

Outside the gifting period, $27,000 can be gifted in any one year. That sounds like a couple’s sensible and sustained gifting programme from age 40 could protect $1.08 million in assets by moving it into a family trust by the time they are 60.

But the case of a 77-year-old woman suffering from dementia shows how even ‘‘allowable’’ gifting can still result in failing the means test.

INCOME DEPRIVATION

The woman’s family applied for a subsidy in 2014 after she went into care, but Work and Income found she and her by then deceased husband had ‘‘deprived’’ themselves of assets back in the 1980s and 1990s by shifting property into trusts.

By giving away the assets, the woman had deprived herself of income that would have been available to help pay for her care, Work and Income decided.

In effect, while there is ‘‘allowable’’ gifting of assets, there is no allowable gifting of the income that can be earned off those assets.

Her family appealed to the Benefits Review Committee, which found Work and Income was correct in its interpretation.

When it comes to income, people entering aged care are allowed to keep only a weekly personal allowance from their NZ Super payments, currently $43.93 a week, plus an annual clothing allowance of $275.50.

A proportion of their other income goes to help pay the resthome bill, and reduces the subsidy Work and Income will pay.

There are rules about what income is counted in the test, but it equates to roughly everything for a single person, and half of the income of a couple where one is not going into care.

HIS AND HERS

Couples may argue that assets are not co-owned, but Work and Income is unlikely to be receptive to the argument.

‘‘Even if the partner regards his or her assets as their own separate property, they are still included in

the means assessment,’’ it says.

Even pre-nuptial agreements are ignored. ‘‘If they are subject to a Relationship (Property) Act 1976 agreement, then the separate property assets will still be taken into account unless the couple have separated,’’ it says.

The woman’s family said Work and Income had changed its rules on deprivation of wealth, even though the law hadn’t changed.

WHO PAYS?

If the subsidy application is declined, family and family trusts have to pay.

But, families be warned: Even if the subsidy is paid, there’s often more money needed. That’s because the subsidy is designed to pay only for adequate care.

Many aged-care homes provide ‘‘premium’’ rooms (larger, with nice views, and ensuites) to those who pay extra.

It can be hard for family to say ‘‘no’’ when it comes to the last months, or years of their beloved parent’s life.