Residential Care Subsidies and Gifting – What you need to know 07 Nov 2016
The Government abolished Gift Duty on the 1st October 2011. When this news was first announced about a year prior to that date, many people thought they would simply wait and then make a large, perhaps final gift, to their Trust and so avoid the need to carry on with a regular gifting programme. Due to the change in the law, that is certainly now possible.
Points to consider
While the news is a welcome change, we would express caution. There are several reasons why you may wish to take a conservative approach at this stage:
Consider whether it is a good idea to gift all the debt owing by you to your Trust. In some instances it may be appropriate to leave some money owing. For example, the retention of some of the debt gives you greater control over the value of the Trust’s assets and therefore, distribution amounts to beneficiaries, some of whose personal circumstances and life choices you may not approve. Reasons may vary, but it is certainly a point worth discussing with us first.
Recent advice by Ministry of Social Development (“MSD”) indicates that there will be a potential disadvantage if you make large gifts. When assessing a person’s eligibility for a residential care subsidy, MSD take into account gifting over the previous 5 years (the Gifting Period) and treat any gifts made during that time exceeding $6,000.00 per annum as a couple, as your assets. They will then include them in your financial means assessment. Gifting outside the last 5 years before the assessment (“Historic Gifting”) must not exceed $27,000.00 per annum for both parties as a couple. Again, to the extent it does, MSD will include the excess gifting as your assets, the total value of which is likely to exceed MSD’s minimum asset threshold for subsidy eligibility.
Even if you pass the asset test you may fail MSD’s income test. This is because both tests are separate and MSD can find there’s been income deprivation from assets gifted off at allowable amounts under the first test! Currently the exempt income limit for a couple who are both in care is only $1,925.00 per annum.
In other words, if one of your reasons for making a larger than usual gift is to gain a possible advantage for future residential care subsidy purposes, then you may achieve the very opposite of what you intend.
In addition to the above, if you are intending to gift more than $27,000.00 in any one year, we are recommending that clients arrange a Certificate of Solvency, ideally prepared by their accountant, for greater credibility. This would be attached to the usual Deed of Forgiveness of Debt. This Certificate is a statement that the assets being retained by you are sufficient to meet your current known liabilities. This is designed to provide evidence that the gifting cannot be construed as an intention to defeat a known creditor’s ability to satisfy their account by accessing your assets, which a lump sum gift may jeopardise.
It is also important to ensure that annual Trust minutes or resolutions are attended to even if your gifting programme has finished. This is evidence of the on-going activity of the Trustees and their attention to the matters of the Trust. Among other advantages, such activities reduce the likelihood of a claim that your Trust is an “illusory” Trust (ie: not a real trust).
Every situation is unique so please discuss your particular case with a professional advisor who can provide you with a tailored solution. Please contact Pat Rotherham at Parry Field Lawyers, (03 348 8480) firstname.lastname@example.org