A trust to guard your money? Not this time

Today’s rules on resthome subsidies mean legal structures no longer offer protection from charges as in the past

Q: We have a family trust set up to protect our investments, especially to avoid our assets being means tested for resthome fees.

Recent comments in the NZ

Herald business section said a trust would no longer be a protection against means testing.

On a scale of 1-10, 1 being “not likely” to 10 “very definitely”, how would you rate the likelihood of this family trust law change?

A: I would rate it 10, as it’s already happened! This has nothing to do with changes to trust law taking place early next year. This change has been in effect for quite some time.

“In assessing eligibility for a residential care subsidy, the Ministry of Social Development will take into account deprivations of assets, which includes the transfer of property into trusts, whether by gift, or sale for less than true market value,” says trust and estates lawyer Rhonda Powell.

“There are limits on the amounts any individual or couple can gift during a 12-month period, and above those limits, the Ministry of Social Development will add the amount of the gifts into the asset pool for the purposes of conducting the means assessment.”

In other words, if your gifts into your trust were above the limits, MSD will treat the extra assets as still belonging to you. For more on the limits see tinyurl.com/ResCareNZ.

Powell adds, “The Ministry of Social Development has very broad powers to look into historical gifting.”

I understand this is because it was deemed unfair for people to look poorer than they really are, so the taxpayer helps to pay for their care.

I know many people were encouraged to set up a trust like yours years ago. But I have to say I agree with the Government’s approach now.

I’ve never forgotten a letter from a resthome resident, some time ago now, saying she was motoring through her savings to pay for her care while the woman in the next room was skiting about having several million dollars in a trust while her care was on the government.

That’s not to say all trusts are a problem. “There are still good reasons to consider a trust, for instance, as a mechanism of succession planning, or as a way of protecting family wealth against various sorts of liabilities,” says Powell. “However, avoiding resthome fees is not one of them.”

Where there’s a Will

Q: May I suggest that testators should scrupulously treat all their children the same. You are not God, that is, omniscient, and you may well not know the whole story.

As Hamlet said, “Use every man after his desert, and who shall ‘scape whipping? Use them after your own honour and dignity. The less they deserve, the more merit is in your bounty.”

A: Thanks for introducing some class into the column!

You’re referring to comments in last week’s column about problems that can arise from treating children unequally in a will.

For other readers — including me when I first read your letter — a testator is someone who writes a will.

And for anyone struggling to understand Shakespeare’s language, Sparknotes.com says your quote means: “If you pay everyone what they deserve, would anyone ever escape a whipping? Treat them with honour and dignity. The less they deserve, the more your generosity is worth.”

It’s a thought-provoking idea, and so is your point about how none of us really knows everything about anyone else’s life.

Still, as lawyer Rhonda Powell said last week, there are some good reasons for unequal inheritances. “Some children may have received additional support during their parents’ lives, and some children may have higher needs than others.”

Another reason may be that one child has helped their parents in old age much more than the others did.

But, as Powell said, it’s better if all this is discussed while the parents are alive, rather than having family rifts and perhaps litigation after the parents die.

Your letter got me thinking about whether this was the first time Shakespeare made it into this column. But no.

In April 2017, a superannuitant objected to being referred to as a beneficiary. In my reply I said names don’t really matter. “As Shakespeare might have said, a superannuitant by any other name is still pretty lucky.” That was based, of course, on Juliet’s

declaration to Romeo that “a rose by any other name would smell as sweet.”

And back in March 2004, in a Q&A about the possibility that superb share investor Warren Buffett has just been lucky, I said, “They say that if you get enough monkeys typing, one of them will come up with ‘Hamlet’.”

But it’s about time the Bard paid us another visit!

$1 million in the bank

Q: I am 72 years of age and have a KiwiSaver account that I took out about four years ago and contributed to for a few years and then ignored. It’s been inactive ever since. I think it I opted for the aggressive growth fund if there’s such a thing?

I have nearly $1 million sitting in a bank at some ridiculous interest rate — maybe 1 per cent or something.

Basically, I am financially lazy and irresponsible. This Covid-19 situation and all the “speak” about security of investments, falling interest rates, stock market freefall, etc, has awakened a modicum of interest in what to do with my million.

I received an online report from my KiwiSaver provider a while back and note there was a rapid rise after a two- or three-month fall.

So — after that long-winded introduction — my questions are:

● Can I drop, say, $700,000 or $800,000 into my KiwiSaver account?

● If I did so, can I withdraw some, or all of it, whenever I like together with whatever increases it has generated (or decreases of course)?

A: Gosh! Many readers will envy you, having a cool million just sitting around. Some might even be annoyed that you can be so casual about money, when they’ve had to work hard for every penny of savings, and then worried about how to invest it.

But — as the correspondent above points out — we don’t know your story. You’re entitled to feel whatever way you want to about your wealth.

The answers to your questions are yes and yes. As someone over 65 you can treat your KiwiSaver account basically like an ordinary bank account — although withdrawals might take a few days.

One note of caution: aggressive KiwiSaver funds are the highest-risk ones. While they tend to grow fastest over the long term, they can plunge, as you saw recently. And they might not recover nearly as fast next time.

Be prepared to see your balance halve and take a few years to come back. If that sounds alarming, move down to a lower-risk fund with at least some of your savings.

The cost of Super

Q: In regard to the last Q&A last week, about whether NZ Super is enough income later in retirement, there is no guarantee that future governments will not reduce NZ

Super.

NZ Super in my opinion is unaffordable at the current rates for future generations of taxpayers, particularly when those taxpayers will be repaying in taxation the large debts now being incurred.

A: I’m sure the situation is not as bad as you fear.

Every few years, Treasury produces a long-term fiscal statement. It covers how the experts expect government money — taxes, spending, debt and so on — to work out over at least the next 40 years.

Of course, there are several different possible scenarios, and acknowledgement that forecasting even 10 years ahead is dodgy. But the statements give broad guidance on how we’re placed — including what would happen if there were disasters such as major earthquakes, agricultural diseases or — yes — pandemics.

Every statement in recent years has assumed that NZ Super will continue pretty much as it is over the next 40 years — although perhaps with annual increases to match inflation only. Currently, the increases match wage growth, which is usually higher than inflation.

Obviously, in future the starting age for NZ Super might be gradually raised to, say, 67. And there are no guarantees that a future Government won’t means test Super so wealthy people get less or nothing.

But we’re talking here about people living on NZ Super alone, or with a small amount of other income.

It’s true that everything seems to be up for grabs these days as far as government money goes. But I can’t see New Zealand pushing our elderly into poverty. Kindness aside, they and their children would be too powerful a voting bloc.

Free to travel

Q: I saw my letter in your column last week. A small addendum — I don’t assume you will publish this but do so if you wish.

I didn’t actually intend to encourage others to travel in retirement, although, truthfully, for anyone with the “bug”, and enough commonsense to keep financially safe, I can think of no better way to cap off a life.

We retired with a freehold house in a good Auckland suburb, a fairly modest nest egg — by the standard of some of your correspondents — of about $150,000, but supported over the years by letting the house, and using the equity in the house to buy and sell a couple of properties at a significant profit. (If we had behaved like that throughout our lives we could have been quite wealthy.)

Income from investments and letting the house more than doubled the Super. Also, the capital gain on property transactions added about the equivalent of the initial nest egg.

We were determined to avoid profligate spending while travelling.

Having a debt-free house at the end was paramount.

Over a period of about 17 years, we roamed — just roamed. We visited around 70 countries, lived in a few for a few months at a time, and in the last decade before my wife died we often spent six months overseas.

Flitting around the world spontaneously is remarkably freeing. We rarely rigidly programmed our journeys — just went, enjoyed and improvised.

I think this cost us about $600,000 give or take a bit. We were very good at finding bargains.

To do this in financial safety, I designed travel software that both planned and costed each journey and provided detailed in-journey budget control. We never went over budget.

I suppose we would still be going if my wife had not become ill and died. And Covid of course. We had a ball!

A: Thanks for telling us more. Your small addendum actually became quite large, because I went back to you with questions.

I wouldn’t like to see others counting on making big money on buying and selling property. Prices don’t always rise obligingly.

But I’m sure your letter will inspire many others to hit the road in retirement — Covid willing.

Mary Holm, ONZM, is a freelance

● journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm. com. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.

There are still good reasons to consider a trust . . . however, avoiding resthome fees is not one of them. Lawyer Rhonda Powell