Trusting the family assets gets a lot harder
Family trusts were once a useful escape route, but are now under scrutiny, writes Martin Hawes.
There are many people who have started family trusts to shelter assets, hoping they will get a rest home subsidy. There may well be a few who are thinking to do the same.
Many, probably most, of these people will be disappointed: it is no longer easy to establish a trust, hive down your assets to it and expect to get a rest home subsidy.
In the past, people have been able to get a subsidy for their rest home care even though the family trust that they have formed has been wealthy.
People have been able to sell their assets into a trust and then gift the resultant debt, so they have no assets in their own names. With everything in the trust, these people could pass the Work and Income NZ (WINZ) asset test and so have their rest home care subsidised.
However, this arrangement has got a lot harder in recent years – few people can flick their assets sideways to a trust and hope to survive scrutiny by WINZ.
This is because two things have happened: first, property prices have gone up in recent years. This means there is a lot more gifting to do to get down to the asset threshold that WINZ applies.
If only one of you is in care, to get a subsidy you can have the house and car and up to $123,000 of other assets.
However, the threshold allowable to get a subsidy if you are single, or both in care, is only $225,000 and that includes the value of your house and car.
Because house values are much greater than they were, many will be over the threshold and unable to successfully apply for a rest home subsidy. Single people and couples who are both in care are very unlikely to get a subsidy.
Second, those who put assets into trusts will need to do a lot of gifting. Not only has the amount to be gifted risen because of higher property values, but the rate at which you can gift has gone down. WINZ looks carefully at trust arrangements and where people have deprived themselves of assets by gifting, may decline a subsidy.
Only $6,000 p.a. can be gifted in the five years before a subsidy application and $27,000 p.a. before that. It is important to note that this $27,000 is the maximum allowed for a couple (previously a couple could gift $27,000 p.a. each). At $27,000 p.a., it would take a long time to gift a housesized debt.
Legally, WINZ can look back as long as it likes and where there has been any gifting over $27,000 p.a. may decline a subsidy.
Therefore, few people will be able to use a trust to escape the asset testing regime that WINZ applies for rest home subsidies.
Martin Hawes is the chair of the Summer KiwiSaver Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd. You can obtain the Scheme’s product disclosure statement and further information at www.summer.co.nz. Martin is an authorised financial adviser.