August 16 2011
Recently, much has been made of the government’s intention to do away with gift duty from 1 October. The abolition of gift duty will allow you to complete a gifting programme in one fell swoop by making a transfer of property to your family trust and then completing a single gift of the full purchase price to the trust.
However the abolition of gift duty will not affect the position of the Ministry of Social Development (MSW) in assessing your financial position for the purposes of rest home subsidies; the MSW’s assessment is entirely independent of the Inland Revenue Department’s gift duty assessments. When the announcement of the abolition of gift duty was made, some suggested that by taking advantage of no gift duty and completing the single gift of the sale value of the asset to the trust, you would thereafter be eligible for government subsidies for services such as rest home care. However, that is not the case.
The MSW has a stringent regime of assessing whether or not you may have ‘deprived’ yourself of assets prior to a means assessment of income and assets. Essentially, the MSW allows you to hold certain assets at the time of making an application for subsidies for health care. Additionally, the MSW will allow you to gift no more than $6,000 for the five years prior to the application, and for the years prior to that, of $27,000/year. Any gifting over those levels may be considered by the MSW as ‘deprivation’ of assets and the MSW will include that excess gifting or disposal of assets in a means assessment, thereby clawing back the transaction that deprived you of assets.
The important message is that after 1 October a one-off gift to a family trust to take advantage of the abolition of gift duty and thereby transferring ownership of assets to the trust will not prevent the MSW from assessing your assets and gifting during your lifetime for the purposes of means assessment for rest home subsidies.
The longevity and independence of a trust will help you in an MSW assessment of deprivation in a means assessment.
However after 1 October, if you attempt to avoid payment of rest home subsidies by completing a single gift in close proximity to a claim for rest home subsidies (or similar), it is unlikely to be effective.