Mary’s Q&A column appears in the Business section of the Weekend Herald. Mary was a finalist for the "Best Columnist – General" award for this column in the 2014 Canon Media Awards.
NZ Herald 18 March 2017
Q&As: Trusts may no longer enable well off elderly to get subsidy
- Possible trap for parents giving money to adult children
- What KiwiSaver rules would change when under National plan
- Partial KiwiSaver tax credit in year you turn 65 - or 18
- Good reasons for using a credit card
Question: Recently my mother was admitted to a rest home. She was assessed as needing hospital
level care, for which she must pay $4,400 per month.
This monthly amount is payable until the value of her assets falls below $219,889, at which time she will be entitled to the residential care subsidy, although she will no longer receive New Zealand Superannuation.
This whole situation came as a surprise. It seems we should have planned for this eventuality many years previously.
Some of our friends have had their lawyers draw up trusts to which assets have been transferred over several years, thus reducing their assets below the threshold. Their lawyers have assured them that they will receive the residential care subsidy.
However, it seems that perhaps the rules relating to trusts have changed recently and they may no longer guarantee entitlement to the subsidy. I wonder if you can clarify the situation please.
Answer: I'm sure you're not the only ones unaware of this situation. Other readers might also want to learn about it.
The Ministry of Social Development confirms that "To be eligible for a Residential Care Subsidy single people must have assets equal to or below the allowable limit of $219,889."
However, it's not quite the end of NZ Super for your Mum.
"New Zealand Superannuation continues to be paid where a client has been needs assessed as requiring long-term residential care in a hospital or rest home indefinitely," says a MSD spokesperson. "The majority of the NZ Superannuation payment is paid to the rest home towards the cost of care. The client is able to retain a portion of their NZ Superannuation to purchase items for their personal needs. For example, shampoo, magazines and postage stamps.
"This is referred to as the 'Personal Allowance'. As at 1 April 2016, the rate of personal allowance is $86.90 per fortnight."
I understand why you're unhappy with the situation. Perhaps it means that your inheritance is being eroded away. That's hard to take.
But at least the allowable limit is much higher than it used to be. And it's difficult to argue that taxpayers should cover the long-term residential care costs of someone who is reasonably well off.
On the trust situation, the MSD says, "People are required to disclose the details of the trust on the Residential Care Subsidy application form. This includes details of who established the trust, what assets were transferred to the trust and what gifting has taken place."
The spokesperson continues, "The Residential Care Subsidy is both income and asset tested. When people transfer assets out of their ownership into a trust, then the Social Security Act provides for consideration of deprivation of both excess assets gifted and deprived income on the gifted assets."
In other words, if someone puts assets in a trust, they deprive themselves of those assets and also income - perhaps interest, dividends or rent - that those assets could earn.
If MSD didn't look into this, "people would simply give away their assets in order to qualify for a subsidy," says the spokesperson.
For more info on the subsidy, see the next Q&A and www. tinyurl.com/NZResCare. For more on trusts, gifting and deprivation of assets and income, see www.tinyurl.com/NZResCareTrusts.
Note that the MSD website says, "The act or inaction does not need to have been done for the purpose of obtaining Residential Care Subsidy. Acts of deprivation for legitimate reasons may still be regarded as deprivation and as a result may still be added back to the financial means assessment."
The spokesperson adds, "People choose to arrange their finances in a variety of ways, as a result each application is considered on its own merits."
If I were one of your friends, I wouldn't be fully confident of their position. And neither should they be. I don't want to get back into a long debate about trusts. We've done that before in this column. But in New Zealand trusts have too often been used by the well off to take advantage of "the system".
Question: In your recent column you mentioned a couple being gifted money from their parents.
Yes, it is tax-free, but in attempting to do this a few years ago I found that lawyers charge quite a high fee to legally do this transfer.
This is a one-off and can be allowed for, but the scary part was being informed that IRD can go back 40 years and claim this money back should the elderly parents require any form of state assistance in the future.
In the end the final advice from this lawyer was not to give offspring any money, and we didn't. My wife and I were in disagreement over this, but I could not continue on my own.
Doing it "under the table" is not really possible for large sums, and if a mortgage is involved the bank wants it all legal through a solicitor.
Answer: You raise a good point about future state assistance. But you've got one detail wrong. It's not the IRD but the Ministry of Social Development that assesses the situation of people applying for the assistance.
There are two types of assistance relevant here:
- Benefit (and extra help) assistance under the Social Security Act 1964.
- The Residential Care Subsidy (RCS) described in the previous Q&A.
Says an MSD spokesperson, "Gifting may affect any person applying for state assistance at any age, because there are provisions in the Social Security Act that allow the Ministry to consider whether a person has deprived themselves of income. This may affect their entitlement to any state assistance."
For the RCS, there's a specific gifting and deprivation regime. "The Social Security (Long-term Residential Care) Regulations 2005 set the rules that MSD has to apply when undertaking the Financial Means Assessment" for the subsidy, says the spokesperson.
In the five years preceding the application, there is a gifting limit of $6000 total per year per application. If you've given more than that, the excess gifting must be included as an asset in the means assessment.
For the period before that, the limit is $27,000 a year per application. "Current policy is that the $27,000 applies per individual, not per couple. Amounts over this are excess gifting," says the spokesperson.
She adds, "The Ministry has a discretion to disregard excess gifting outside five years, but must take into account the general purpose of social assistance and the requirement that people should look to their own resources first. The general rule is that people need to look after themselves and their spouse first, before benefiting adult children."
What's more, even if you have given gifts within the allowed rules, "the Ministry may also need to consider whether an applicant has deprived themself of income, and whether the gifted assets would have generated income that the applicant could have used."
For general benefit assistance, there are no allowed gifting rules, and no time limit for considering deprivation.
Asked if the department could look back as far as 40 years for either type of assistance," the spokesperson replies, "There is no time limit for the Ministry when considering gifting that has occurred."
Question: Can we assume that both government and employer contributions to KiwiSaver will extend until the age of 67 under National's proposed changes to government superannuation?
Answer: It seems so.
Finance Minister Steven Joyce says, "The age that KiwiSaver funds can be accessed will remain at 65."
However, "It's my intention that people should be able to continue contributing to Kiwisaver and receiving the employer contribution as normal, until they are eligible for superannuation," which National says it will raise to 67.
Asked if he also plans to continue the government tax credit until superannuation age, Joyce replies, "Yes that is the intention, but we would need to work through the policy details."
Continues Joyce, "The Minister of Commerce and Consumer Affairs and the Minister of Revenue are reporting back to Cabinet with detailed proposals around implementing the changes to the KiwiSaver settings, so we'll have the full discussion then."
Under current KiwiSaver rules, all the changes - the start of withdrawals, the end of the tax credits and the end of compulsory employer contributions - take place at NZ Super age, whenever that is. So National would break that connection.
Perhaps it's keeping the withdrawal age at 65 to make it easier for people who will struggle to wait until 67 for their NZ Super to start.
Question: I'm aware that the KiwiSaver government tax credit ceases at age 65, but I'm interested to know if you get the credit for the proportion of the tax year prior to turning 65.
Answer: The calculation is not based on the tax year, which ends on March 31, but on the KiwiSaver year ending June 30.
And yes, you get a partial tax credit for the proportion of that year that you are under 65. So, if you turned 65 on December 1, your maximum tax credit would be five twelfths of the usual $521 maximum.
It's similar for people turning 18 and therefore becoming eligible to start receiving the tax credit. Their first year maximum will be proportionate to how much of the KiwiSaver year they are over 18.
Question: I have read the letters in regard to people complaining that they are not able to increase their credit cards limits.
I have worked in the financial industry for years and know the process for credit card limits. Most credit cards are in individual names with the other card holder known as an affiliate cardholder. The principal cardholder is the person solely responsible for the debt, even if the other card holder has ticked up the debt. If the principal person does not have an income they cannot service the debt.
Often people applying for credit card increases are high earners and they often have a high debt ratio. They often omit from conversation that they have other hire purchases and credit cards with only the minimum payments being made. Credit checks pick this information up.
If all these people have so much money, why don't they use those funds, because at the end of the day the credit card needs to be repaid.
It is high time that individuals take responsibility for their financial situation and stop making it others' problems.
Answer: Thanks for some interesting insights. But I don't agree with your last two paragraphs.
There are good reasons for using a credit card:
- Many people don't have several thousand dollars sitting around in a bank account to buy, say, a new washing machine when the old one dies. If they put the purchase on a credit card, that usually gives them a few weeks to line up the money - perhaps from a maturing term deposit.
- Some people find credit card bills are a good way of keeping track of how much they're spending in categories like entertainment, groceries, clothes, travel and so on.
- People often find the cards useful when they're travelling overseas.
Finally, I don't think any of the correspondents were shirking their responsibilities. They were just wanting to be treated fairly.
* Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to firstname.lastname@example.org or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.