Residential Care and the Government

Things which may helpful for you, family, and friends to know.

Although these issues may seem to be far in the future for you and your family, the better acquainted you are with the facts now may save huge amounts of money later.

With Residential Care Subsidies the Government can reclaim money from your home or assets as well as retaining a proportion of any pension or superannuation, or some other benefit you are entitled to leaving you entitled to just $34.87 a week and a clothing allowance of $246.91 a year.

To avoid this it is helpful to you and members of your family if plans are made and put into place as many years as possible before any need arises so as to take full advantage of concessions and exemptions which are available to those who plan ahead.

What does the Subsidy Provide?

The Residential Care Subsidy can be available to people who qualify, if they are aged from 50 onwards if they are single, or from age 65 years and onward for people who have either a spouse or partner or a dependant child.

If long-term residential care is needed in a rest home or a hospital  then the Ministry of Health may pay part of that cost by way of a Residential Care Subsidy.

However, when deciding whether or not to make payments, each person who applies is tested by Work and Income as to their financial means. The Ministry of Health also assesses whether or not the care and health requirements for the person applying for the Subsidy are such that long-term live-in care is really required. However, even if care is required, the Residential Care Subsidy is only provided to those who also do not have the means to provide it for themselves. 

Repayment to the Government and Exceptions and Exemptions

Ultimately repayment is required by the Government from the assets (and the income) of the person receiving the subsidy. Available income is taken from applicants during their lifetime, and the balance usually by way of deduction from their Estate, when it is administered, if in fact there are any funds left. However, if the house is sold beforehand, the money is taken when the sale takes place. So where there are assets the Subsidy is only a loan.

Steps You/Your Family Can Take

When assessing assets, the Government does allow some exemptions, if they apply including:

• Pre-paid funeral expenses for the person (and for the person’s partner) of up to $10,000 each;
• Personal belongings such as clothing and jewellery;
• Household furniture and effects.

Most other assets are claimed for repayment. This includes cash money, the family home, and investments starting after an exemption limit which varies between (from 1 July 2009) from $95,000 to $190,000 depending on circumstances.

Many people have decided to make provision for pre-paid funeral expenses by setting aside these amounts in special purpose trusts, called “Funeral Trusts” which are simple and easy to arrange.

These enable people to claim the exemption of up to $10,000 (or up to $10,00 each for couples).

Gifting

There are also two special exceptions for assets which are “gifted” away during a person’s lifetime.

A huge number of New Zealanders now set up Family Trusts, usually with a gifting programme in favour of their trust so as to transfer assets. We have seen estimates as high as 400,000 New Zealanders who have done so. Usually the value of assets transferred is capped at $27,000 per person in each year because gifting more than that will attract payment to the government of Gift Duty Tax. By this means, assets are transferred into their trust, which cares for them during their own lifetime and their surviving spouse or partner thereafter, and then has funds to provide for family members.

This is another area where, the earlier these arrangements are made, then the larger the amount of assets which can be transferred for the long-term benefit of the family. (The $27,000 figure includes the $5,000 exempted gifts mentioned below).

If some of this gifting is made within five years of someone starting to receive a Residential Care Subsidy then gifts of above $5,000 made before that time period would be exempt from claw back in full but the later gifts would only be exempt up to the limit of $5,000, making it very important that these gifting programmes are put in place as early as possible so that as much as possible can be transferred in good time.

Secondly, when making assessments, gifts which were made within the period of 5 years before applying for the Residential Care Subsidy are exempted up to a limit of $5,000  per year, each. This means that $5,000  per year can also be transferred away nearly right up to the time the subsidy is needed. Making these gifts does not require any actual cash money. Very often this is done by transferring funds into a trust which is then able to use the asset (or money) for the benefit of the person making the gift, but keeping the “ownership” of the money separate so as to be exempted from being reclaimed by the Government later.

Income

Income is also taken into account in assessing Residential Care Subsidy entitlement. There are complicated rules about this. Some types of income do have an exemption (for example certain pensions) but most income received is included. There are also various different arrangements which apply if there is a spouse or partner involved.

Again, if income is paid into a trust then that income is not claimable by the Government (beyond ordinary income tax requirements) and can therefore accumulate and be used for the benefit of spouses, partners and other family members instead.

Should you take some Action?

Making arrangements for a Funeral Trust can be of help to very many people, whether their assets are large or small. It is well worth considering and making an enquiry about, and seeing if arrangements can and should be made in your case or that of members of your family. These are simple and straightforward steps to take.

Family Trusts can also be considered where appropriate and there may be other useful options to consider. If you own your home or have other significant assets it is well worth making enquiry sooner rather than later. As you can see to obtain the best benefits takes time and early action is important.