Trusts, Gifting and the Rest Home Subsidy

Thursday 23 November, 2017

The Ministry of Social Development (MSD) administers the Social Security Act 1964. The Act includes a residential care subsidy regime which concerns the cost of rest home care (commonly called the rest home subsidy).

 To be eligible for the rest home subsidy:-

1. a person must be assessed as requiring care, and once assessed
2. they can apply for the subsidy which is means tested.

The test assesses a person’s assets and income. If a person’s assets are less than a certain amount, MSD then assesses that person’s income to determine how much they must contribute to the weekly cost of their care. Importantly MSD can refuse an application if a person gives away, or “deprives” themselves of, their assets.

Justice Katz’s recent decision in re Broadbent v Chief Executive of the Ministry of Social Development [2017] NZHC 2123 provides clear guidance on how gifting to a trust at the rate of $27,000 p.a. or less, or $6,000 or less within 5 years of the date of the application, is treated for rest home subsidy purposes.

Mrs B sold various assets to two family trusts with a debt back of $328,750 which she gifted in annual increments of $27,000 or less from 1990 onwards.

The value of the trusts’ assets had increased and was described as “greatly in excess” of the original sums gifted.

The court found that Regulation 9B of the Social Security (Long – Term Residential Care) Regulations 2005 (Regulations) permits gifts to trusts of $27,000 p.a.  While MSD accepted such permitted gifting is not a deprivation of assets, it argued the gifting deprived Mrs B of the income streams connected to the assets, and that income should be attributed to her (in line with MSD’s standard procedure).

MSD calculated that by gifting to the trusts Mrs B had deprived herself of approx. $45,000 of income a year, and that amount should be treated as part of her income when assessing her eligibility for rest home subsidy.

Mrs B argued MSD was wrong, and an unconditional gift to a trust includes all rights in respect of the asset, including the entitlement to future income.

Katz J agreed with Mrs B. She found there was nothing in the Regulations that suggested Parliament intended permissible gifting to be conditional, and therefore Parliament must have intended such gifts to trusts to be unconditional.  She rejected MSD’s argument saying its interpretation “does not accord with the statutory scheme”.  She agreed permissible gifting to trusts includes future income streams and such income cannot be clawed back by MSD for its means assessment process.

In summary, the gifts made by Mrs B to her trusts were found to be permissible gifts. Those gifts were unconditional and included all entitlements to future income.  MSD was unable to include that income in its assessment of Mrs B’s income.

Comment

The decision represents a significant departure from current MSD policy which to date has included income from a trust in its assessment process.  If you have any questions about this decision or your trust please contact us for further advice.

This article was written by Peter Fanning. Peter is a partner and senior trust practitioner who provides trust advice to clients and other professionals across New Zealand. Peter has been an accredited member of The Society of Trust and Estate Planners since 2003. He has recently been appointed by the New Zealand Law Society to the Trust Bill Working Group.

Please contact Peter Fanning if you want to learn more about the issues discussed in this article.