Planning and the Aged Care Subsidy
It’s estimated that on average people under the age of 50 will spend the last 3 years of their lives in residential aged care with the present aged population spending between 1.5 years to 2 years. But who should fund this?
Not everyone will spend time in a rest home, but if they do the cost is high with a current estimated average of up to $80,000 being spent per occupant.
In New Zealand, the obligation to pay for rest home care has been means tested so that the taxpayer only covers the cost if the person needing care is judged to be poor enough to get Work and Income's Residential Care Subsidy.
The maximum subsidy for ordinary aged care is just over $1000 a week showing what a person can expect to pay as a base level if they don’t get the subsidy.
It’s been a feature of Estate planning for some years now to use family trusts, and gift away assets to descendants, to try to keep wealth in the family, and achieve relief through the Residential Care Subsidy if Rest Home Care is required.
But with growing public funding concerns surrounding an increasing life expectancy and a growing, aging population, the means test is becoming harder to meet and however carefully your estate plan is carved, it is getting more difficult to beat the system.
Work and Income is on the lookout for people who have "deprived" themselves of assets and income, and are quick to deny subsidies to people who've done it.
The way Work and Income approaches the means test is complex, so it’s important to get legal advice before trying to protect assets and in any event as early as possible before the need arises to approach Work and Income with an application.
WHAT IF YOU ACT EARLY?
Acting early to protect assets would be my number 1 recommendation. If you're looking to rearrange your assets because you are likely to go into care in the next few years, it could be too late.
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.
As far as Work and Income is concerned, its mandatory to include gifts made in the five years before someone applies for subsidy when they calculate the asset means assessment so, paying for a granny flat to be added to your children’s home during the five years, for example, needs to be carefully documented as such an arrangement would come under very close scrutiny.
During the 5 year period, people can give up to $6500 away each year, and it will not be included in the asset means testing. Outside the 5 year gifting period, people can gift away up to $27,000 in any one year.
But even "allowable" gifting can still result in failing the means test.
The effect of shifting property into trusts is to "deprive” yourself of assets. If those assets are income earning assets then Work and Income may form the view that you have deprived yourself of income that would have been available to help pay for care.
In effect, while there is "allowable" gifting of assets, there is no allowable gifting of the income that can be earned from those assets.
When it comes to income, people entering aged care are allowed to keep only a weekly personal allowance from their income, plus an annual clothing allowance. The rest of their income goes to help pay the rest home 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.
ASSETS OWNED SEPARATELY
Couples may argue that assets are not co-owned, but Work and Income is unlikely to accept that argument.
Even if the partner regards his or her assets as their own separate property, they are still included in the means assessment.
Even so called 'pre-nup agreements' can be ignored. If subject to a Property (Relationships) Act 1976 agreement, then separate property assets will still be taken into account unless the couple have separated (bona fide).
WHO PAYS IF NO SUBSIDY IS GIVEN
If the subsidy application is declined, family or family trusts will have to pay. This use of funds may be inconsistent with the terms of the family trust, thus opening a whole new can of worms.
THINGS TO WATCH OUT FOR IN ASSET PLANNING
While every single case is reviewed on its own merits, arrangements Work and Income are unlikely to accept, include where people:
There may be no way around making a contribution to yours or your family’s residential care but if you want to know if there is in your circumstances get legal and accounting advice as soon as possible.
These Questions and Answers reveal 10 Very Good Reasons you should have a Will.
1. Who decides what happens to your assets?
If you die without a valid Will, your estate is divided up according to the law and you will have no say in how it is distributed. A Will is a legally binding document, especially if it is written correctly, and it lets you say how you want your estate to be dealt with upon your death. Having a valid Will helps to minimize family fights about your estate, because it clearly spells out “Who What and When” for your Estate.
2. Who will raise your children?
By making a Will you have a say in who will take care of your children. Without a Will, the Court may take it upon itself to choose among family members or a government appointed guardian and there may be no regard to your views about those family members.
3. Who will control your Estate?
With a Will, you get to decide who will control (administer) your Estate. You can choose the person or institution you think will be most likely to responsibly follow your instructions without applying their own preferences. Because Executors play the biggest role in the administration of your Estate, you’ll want to be sure to appoint someone who is honest, trustworthy, and organized. This may not always be a family member!)
4. How long will it take to administer your Estate?
A professionally prepared and valid Will greatly assists the cost-efficient administration of your Estate and the early distribution of your assets to the beneficiaries named in your Will. Most estates will need to go through a process of being proven by the Court (Probate). Having a Will speeds up this process. When you die without a valid Will, the Court makes the decision who will administer your Estate and how to divide your Estate without any input from you. This can cause expensive delays.
5. What if you want to exclude someone from receiving a benefit from your Estate?
Most people don’t realise that they can exclude beneficiaries or give unequal amounts to beneficiaries. It might be as simple as a loan or gift being taken into account. It’s really important to have a professionally prepared Will if that is your intention. Also, if you want to protect what you give a beneficiary, that provision needs to be in a Will, or in alternative documents you can prepare when you are doing your Will. It’s a complicated area and it certainly pays to get this right.
6. What if you want to make donations to charities?
There is only one binding way to make a bequest to a charity upon your death and that is by having that bequest written into a Will. Again, gifting to charities in your Will can be complicated and you should talk this through with a professional.
7. How can you avoid legal challenges to your Will?
For a start, if you don’t have a Will you have no protection against challenges against your Estate. Preparing a valid Will with professional advice increases the protection your beneficiaries have. Wills can be challenged but most valid well written Wills are not – it’s as simple as that.
8. What do you do if your circumstances change?
Well, circumstances do change. Life changes such as births deaths, marriage, and divorce all create situations where having a Will and changing that Will are essential. Wills should be reviewed regularly – depending on what is happening in your life – as regularly as every year to every three years. Don’t invest in preparing a Will and then leave it in the back of a cupboard.
9. What will your defacto partner be entitled if you die?
If you die without a Will your defacto partner may not be automatically entitled to any of your Estate. He or she may stand to lose all of the assets and treasured mementos you want them to have.
10. Does having a Will mean your intended beneficiaries are provided for?
Not necessarily. It depends very much on how your assets are structured and owned. If you prepare your Will with the advice of a solicitor you will be able to review all of your estate planning needs including appropriate arrangements for your incapacity, and a review of your business succession, as well as any trusts. life insurance and superannuation.
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