Increasing numbers of elderly New Zealanders are going into residential care and seeking the government’s residential care subsidy. The legislation governing the subsidy is the Residential Care and Disability Support Services Act 2018, and the assessment procedure is overseen by the Ministry of Social Development (MSD).
To receive the subsidy, applicants must satisfy three MSD criteria:
1. The value of their assets is below the means assessment threshold
2. Their income is below the allowable amount, and
3. They have not ‘deprived’ themselves of more assets than MSD allows (for example, by giving them away to a trust).
The current asset thresholds for the means assessment are below.
Single: You are eligible for the government subsidy if you have assets equal to or below the allowable threshold of $230,495.
Couple where one partner is in long-term care: Those who have a partner who is in care have two threshold options:
1. Combined assets of $126,224, excluding the value of the home and car, or
2. Combined assets of $230,495, including the value of the home and car.
Do note that your house and car are exempt from the assessment of assets when it’s the main place where your partner, who is not in care, or a dependent child, lives.
Couple who are both in long-term care: You are eligible if you have combined assets equal to or below the allowable threshold of $230,495.
Gifting criteria: The gifting rules allow gifts of $6,500 per couple per year in the five years before going into care, and $27,000 per couple per year outside that.
Income assessment and deprivation
The second stage is the income assessment. This was the subject of the recent decision of the Court of Appeal that clarified the meaning of ‘deprivation’ in the context of the MSD’s income assessment.
In this case, Mrs Broadbent and her late husband had sold their house to a trust. The purchase price that the trust paid was a market price, so the Broadbents received ‘fair value’. The trust had no money to pay the purchase price, so the Broadbents lent the whole of the purchase price to the trust (the debt) and then gradually forgave the debt over several years, finishing more than five years before Mrs Broadbent needed to go into care.
At Mrs Broadbent’s means assessment stage, MSD accepted that all the gifting was allowed, which meant that the gifted assets were not included in Mrs Broadbent’s $230,495 total asset allowance. However, at the income assessment stage, MSD decided to treat the house as if it was still owed by Mrs Broadbent and calculated the present day income Mrs Broadbent could receive from that by renting it out. MSD did that even though the gifting was allowed, because they decided that the gifting had ‘deprived’ Mrs Broadbent of the income from those assets.
The Court of Appeal found:
• When Mrs Broadbent sold the property, she also sold any potential income that she might have received from that as part of the purchase price
• The annual forgiveness of ‘allowable’ amounts of the debt logically also transferred the income stream associated with that portion of the debt
• Mrs Broadbent could not logically have deprived herself of the income from the amount of the debt that was legitimately forgiven, however
• Mrs Broadbent should have claimed the income from the steadily decreasing loan principal and, to the extent she did not, she ‘deprived’ herself of that income.
In summary, MSD was not entitled to:
• Treat the trust’s potential income from the house in the present day as if it were Mrs Broadbent’s income, and
• Ignore the parts of the debt that had been validly forgiven by Mrs Broadbent (and her husband before he died).
Rather, MSD can only look at the steadily reducing portion of the debt over time and then determine, in light of that, what a reasonable current income figure should be in the present day.
Some comfort if you’re gifting assets
If you have a trust, you can take some comfort from the Broadbent decision. It means that MSD cannot treat trusts as if they don’t exist and cannot allocate the whole of a trust’s notional or actual income to a person applying for a residential care subsidy.
However, the decision in Broadbent did also say that where assets are sold to trusts in return for debts that don’t provide for interest to be paid, MSD is allowed to treat that as ‘deprivation of income’, which may mean that you could pass the means assessment, but fail the income assessment. The MSD has not yet decided how it will calculate that ‘deprivation’, but it will no doubt be complex.
If you have a trust and you have transferred assets to the trust in return for a debt that you have forgiven over time, and you are concerned about residential care subsidies, we would recommend talking with us to discuss the next steps.