REPEAL
OF GIFT DUTY- EFFECTS ON REST HOME SUBSIDIES
From 1 October 2011 Gift Statements are no longer
required to be filed with IRD. However it is still necessary to
prepare the following documents:
If you have set up a Family Trust and the ability to
be eligible for Rest Home Subsidies in the future is a concerm of
yours it may not be beneficial to gift the total amount of the ungifted
amount after 1 October, 2011. This is because WINZ, who administer
Rest Home Subsidies, under current
legislation and in considering eligibilty for rest home subsidies,
can ignore gifting which is over $27000 in any one year and deem that the
excess
of such a gift is passing ownership from the donors, and thus the excess
of such an
amount is still a personal asset in the calculation of the
eligibity for rest home subsidies. Thus say gifting say a $200,000
ungifted amount in one lot can lead to WINZ deeming that this amount is
still a personal asset in working out entitlement to rest home subsidies.
Therefore it may be beneficial, to have a greater elibility for rest home
subsidies (assuming you go into a rest home and current statistics are
that
only about 7% of the population does) to continue to gift
progressively and at no more than $27000 per year. This therefore ,
under current legislation, presents a choice to you:
-
gift the full ungifted balance in one lot, which
will mean no gifting legal costs thereafter. This would of course mean
that ownership rights of the gifted
assets are passed to the Trust with immediate effect. There may be good reasons to carry out
this action e.g. your business carries some risk, you wish to gift
promptly to avoid the ownership of personal assets due to personal
relationship issues
-
gift the remaining ungifted amount at no more
than $27000 per year per couple, which would mean ongoing legal gifting costs,
but give you greater eligibilty for rest home subsidies (if you go
into a rest home later in life)
It is likely that your Trust Solicitor will be
contacting you to seek your intentions. Read on about
this:
What effect will the changes to gifting law have on
your entitlement to benefits and to the Residential Care Subsidy?
The Government plans to stop charging people gift duty if they
make gifts of more than $27,000 in a year. Gift Duty is administered by
Inland Revenue Department. Some people might think that they can
then give away all their assets and still be eligible for a benefit.
When changes to gift duty are introduced on 1 October 2011 there will be
some more specific questions about gifting and family trusts included on
the application form for Residential Care Subsidy Financial Means
Assessment Application Form to WINZ. There are also questions
about trusts and income in other application forms. Questions on the
forms will help to ensure that information is provided to assess a
person’s financial entitlement to benefits and to the Residential Care
Subsidy.
What is gift duty?
Gift duty is a charge on gifts totalling more that $27,000 made by
one person to others in any 12 month period.
What are the 1 October 2011 changes to
gifting laws?
From 1 October 2011 anyone can gift any amount without paying duty
on the amount gifted. This change will mean it is easier to transfer or
gift assets.
Do WINZ have the same rules around
gifting as IRD related to Residential Care Subsidies?
No.
Are WINZ's rules changing?
No.
What do WINZ acccept as allowable
gifting?
The financial means assessment (associated with the Residential
Care Subsidy) has a small amount of allowable gifting per application.
From 1 July 2011 the legislation allows you to give away up to
$6000 a year - including 'gifts in recognition of care' - in the five
years before you apply for residential care subsidy (the gifting
period).
If your total gifts over the five years exceed $30,000,
the excess will be counted back into your assets. In the period before
the gifting period, you can gift $27,000 per year.
To clarify the last paragraph, if one spouse applies for the
subsidy, the couple could have given away $27,000 a year in the years
before the five-year gifting period. Any amount beyond that may be
added back to their assets when considering the asset threshold for
the subsidy.
Many couples have, in the past, gifted $27,000 a year each
to a trust. In this case , $27,000 of gifts per year would be allowed
and the second $27,000 would be added back for the first Applicant for
Rest Home Subsidies.
If the other spouse also applies later, WINZ then says
the couple could have given away $54,000 a year before it adds
back. In other words, for each application they allow $27,000 of
gifts made in any year outside five years.
Many couples have - until the recent law change - gifted $27,000
a year each to a trust. In this case , $27,000 of gifts per year
would be allowed and the second $27,000 would be added
back.
Any additional gifting on top of the threshold is added back in
the Financial Assessment calculation by WINZ .
What if you’ve gifted more than the
allowable amount for Residential Care Subsidy?
It is added back into the financial means assessment and may
affect your entitlement to the subsidy depending on how much gifting is
involved.
Is there an amount that is allowed to be
gifted when a person applies for a benefit?
No, for all other assistance WINZ consider if the gift has lead to
you depriving yourself of an asset,or income from that asset, that would
affect your entitlement to assistance or the rate of benefit you
receive.
Can you still get a benefit if you have
assets which are in a trust?
It depends, WINZ will take into account situations where people have
deprived themselves of income/assets when they have placed their assets
in a trust.
Will WINZ change their approach when
gift duty goes?
No.
Will WINZ continue to take assets in
family trusts into account when assessing entitlement for benefits?
Yes.
What the Current Asset (in your Own
Name) Limits that are
exempt from the Residential Care Eligibility Assessment and you may
retain?
- Person has partner in care or no partner- $210000 plus personal
effects plus $10000 pre-paid funeral expenses
- Person has partner not in care- Either $210000 or $115000 +
house + car
If you have gifted assets will you still
get a benefit?
It depends, WINZ will consider whether or not gifting your assets
has directly or indirectly changed your financial position to qualify
for a benefit or increased rate of benefit. If WIZ consider that you have
deprived yourself of assets or income as a result of gifting, then they
can include these in your assessment as if you haven’t gifted them.
Refer the Case Study below
Case Study
Mary Bloggs scenario for Residential
Care Subsidy:
Mary Bloggs puts her assets in a family trust when she starts a
business, so creditors couldn’t get access to them if her business was
unsuccessful. Mary immediately starts gifting away her transferred
assets at $27,000 each year. Over the years, her business was very
successful and grows within the trust. Mary also adds other investments
to the trust. Eventually she sells her business (although her original
reason for establishing the trust has gone she keeps the trust on). Mary
reaches the age of 80 and is needs assessed as requiring residential
care. Because her assets are all transferred to the trust, she applies
to WINZ for a financial means assessment to see whether or
not she is financially eligible for the Residential Care Subsidy to help
meet the cost of her care. Mary states on her application that she has
no assets. For the purposes of this example, we'll say that she is way
beyond the five year gifting period.
Response:
There are several factors that are to be taken into account when
assessing a person’s financial eligibility to the Residential Care
Subsidy. Each individual case is fully reviewed
before a decision can be made. This scenario includes the addition of
some other factors which might commonly occur and to explain how these
factors might influence the decision.
In the Application Form for Residential Care Subsidy, Mary was
asked a specific question on trusts "Are you, or have you or your
spouse/partner (if you have one), ever been a settlor, transferor,
trustee or beneficiary of a trust?” Mary ticked "yes" to
that question and filled in the space for the name of the trust the
"Bloggs Family Trust". Mary felt her intention to enter into
the trust (for business reasons) was important, so she put this down on
the form too.
The first part of Mary's financial means assessment is to look at
her assets. The WINZ Case Manager determines whether the combined
value of Mary’s assets were above, at or below the current asset
threshold applicable to Mary’s circumstances. The means assessment
also looks at whether or not Mary had deprived herself of an asset by
her decision to place her assets in the Bloggs Family Trust. Although it
was clear Mary hadn't established the trust in order to financially
qualify for the residential care subsidy that does not mean WINZ could
simply disregard the trust.
A guide to assessing the deprivation is contained in Regulations
which set out that in the period before the gifting period (that is,
more than five years before applying) WINZ should disregard $27,000 of
gifting per year. Mary established the Bloggs Family Trust some time
ago, and even at a rate of $27,000 per year, all the assets of the Trust
were effectively "discounted" from her means assessment (as to
assets) long before the last five years before she applied.
Apart from the assets in the Trust, Mary had only a few low value
assets and she came under the current threshold for subsidy. For the
year 1 July 2011 to 30 June 2012 – a single person is allowed maximum
assets of $210,000. A couple with one in care have the choice of
$210,000 or the option of $115,000 with the value of their family home
and car exempt from the means assessment. However, the second step in
the financial means assessment is to assess Mary's income. The Trust
had a lot of assets, and generated (and was capable of generating) a lot
of income. The Trustees had made a resolution that no income would be
paid to Mary from the date she entered rest home care. This was made on
the basis the trustees believed she was entitled to free rest home care,
having had a needs assessment by the relevant District Health Board
(with Mary refusing to ask the trustees to reconsider that decision).
The WINZ Case Manager looked at the income the Trust was earning
and considered Mary as having deprived herself of income, first, because
the income was stopped and second because she declined to seek
assistance from the Trust to help meet with the cost of her care. As a
result an income charge was calculated and Mary was required to
contribute that amount to her costs of care. Even though Mary was a
discretionary beneficiary, and the trustees had to consider the other
beneficiaries, WINZ were entitled to regard Mary as having been
the original owner of the asset and by placing it in a trust (for
whatever reason) as having deprived herself of the income. The
consequence was that the income the Trust was earning should have been
applied to her costs of care.
