September 09 2011
Don’t expect government hand-outs just because you’ve put everything into a trust
After gift duty comes to an end from 1 October, one thing will still be clear: you can’t give everything away to a trust and then expect to rely on state assistance because you don’t own any assets. Recent publicity about the Petricevic case¹ has highlighted the rules about deliberately depriving yourself of assets or money. Most people, however, will be aware of similar rules about rest home care as these provisions have been well-known for years.
Rod Petricevic is a high-profile former finance company director who is facing serious criminal charges. He was turned down for legal aid, so he appealed to the High Court – and lost. Although Mr Petricevic is not a beneficiary of the trust, the judge was sure that if Mr Petricevic was really stuck, the trustees would find a way to help out with an ‘advance’ (in other words, a loan). Also Mr Petricevic is a very experienced company director and the court believed that, if necessary, he would cope fairly well without a lawyer.
Help from the state
A number of government agencies apply similar rules. They take into account the ‘resources’ available to anyone who applies for help from the state. More specific rules apply to rest home care – formally known as the ‘long-term residential care’ subsidy. These rules will not change when gift duty is abolished.
The Ministry of Social Development (called WINZ in earlier times, and now the MSD) will continue to apply a means test to anyone who applies for a residential care subsidy. It can refuse to pay the subsidy if:
- You and your spouse or partner have given away more than $6,000 a year over the five years before applying for the subsidy, or
- You and your spouse or partner gave away more than $27,000 in any year before the start of that five year period.
These limits apply to each application for a subsidy. If only one spouse or partner needs care, these limits will apply to everything given away by both of them. If both apply for a subsidy, each is allowed to have made gifts up to the amounts stated. There is no limit to how far the MSD can look back when applying the $27,000 a year test.
If a possible residential care subsidy is of concern to you, you may be best advised to give away only $27,000 a year – and to reduce to $6,000 a year long before you may need to consider rest home care. This would need to be the total a couple gives away each year, including gifting to a trust and any reduction or forgiveness of debt. Everyone’s situation tends to be a little different, so you need to get individual advice.
Setting up a trust
We do not usually recommend setting up a trust just to qualify for the residential care subsidy. Often people have more than one objective when they are considering establishing a family trust. Setting up a trust in a way that appears specifically structured to meet MSD requirements may mean you – or your estate – could be vulnerable to other claims. There is no-one-size-fits-all answer and legal advice is essential.
There are many other good reasons for setting up a trust. Trusts are still a good way to protect your assets, but you need to go about this the right way to achieve your objectives.
¹ Petricevic v Legal Services Agency HC Auckland CIV 2011-404-2633 Wylie J 3 June 2011; R v Petricevic HC Auckland CRI 208-004-029179 Venning J 12 July 2011