REPEAL OF GIFT DUTY- EFFECTS ON REST HOME SUBSIDIES
From 1 October 2011 Gift Statements are no longer required to be filed with IRD. However it is still necessary to prepare the following documents:
Deeds of Forgiveness forgiving gifts
Deeds of Gift for all new gifting.
If you have set up a Family Trust and the ability to be eligible for Rest Home Subsidies in the future is a concerm of yours it may not be beneficial to gift the total amount of the ungifted amount after 1 October, 2011. This is because WINZ, who administer Rest Home Subsidies, under current legislation and in considering eligibilty for rest home subsidies, can ignore gifting which is over $27000 in any one year and deem that the excess of such a gift is passing ownership from the donors, and thus the excess of such an amount is still a personal asset in the calculation of the eligibity for rest home subsidies. Thus say gifting say a $200,000 ungifted amount in one lot can lead to WINZ deeming that this amount is still a personal asset in working out entitlement to rest home subsidies. Therefore it may be beneficial, to have a greater elibility for rest home subsidies (assuming you go into a rest home and current statistics are that only about 7% of the population does) to continue to gift progressively and at no more than $27000 per year. This therefore , under current legislation, presents a choice to you:
gift the full ungifted balance in one lot, which will mean no gifting legal costs thereafter. This would of course mean that ownership rights of the gifted assets are passed to the Trust with immediate effect. There may be good reasons to carry out this action e.g. your business carries some risk, you wish to gift promptly to avoid the ownership of personal assets due to personal relationship issues
gift the remaining ungifted amount at no more than $27000 per year per couple, which would mean ongoing legal gifting costs, but give you greater eligibilty for rest home subsidies (if you go into a rest home later in life)
It is likely that your Trust Solicitor will be contacting you to seek your intentions. Read on about this:
What effect will the changes to gifting law have on your entitlement to benefits and to the Residential Care Subsidy?
The Government plans to stop charging people gift duty if they make gifts of more than $27,000 in a year. Gift Duty is administered by Inland Revenue Department. Some people might think that they can then give away all their assets and still be eligible for a benefit. When changes to gift duty are introduced on 1 October 2011 there will be some more specific questions about gifting and family trusts included on the application form for Residential Care Subsidy Financial Means Assessment Application Form to WINZ. There are also questions about trusts and income in other application forms. Questions on the forms will help to ensure that information is provided to assess a person’s financial entitlement to benefits and to the Residential Care Subsidy.
What is gift duty?
Gift duty is a charge on gifts totalling more that $27,000 made by one person to others in any 12 month period.
What are the 1 October 2011 changes to gifting laws?
From 1 October 2011 anyone can gift any amount without paying duty on the amount gifted. This change will mean it is easier to transfer or gift assets.
Do WINZ have the same rules around gifting as IRD related to Residential Care Subsidies?
Are WINZ's rules changing?
What do WINZ acccept as allowable gifting?
The financial means assessment (associated with the Residential Care Subsidy) has a small amount of allowable gifting per application.
From 1 July 2011 the legislation allows you to give away up to $6000 a year - including 'gifts in recognition of care' - in the five years before you apply for residential care subsidy (the gifting period).
If your total gifts over the five years exceed $30,000, the excess will be counted back into your assets. In the period before the gifting period, you can gift $27,000 per year.
To clarify the last paragraph, if one spouse applies for the subsidy, the couple could have given away $27,000 a year in the years before the five-year gifting period. Any amount beyond that may be added back to their assets when considering the asset threshold for the subsidy.
Many couples have, in the past, gifted $27,000 a year each to a trust. In this case , $27,000 of gifts per year would be allowed and the second $27,000 would be added back for the first Applicant for Rest Home Subsidies.
If the other spouse also applies later, WINZ then says the couple could have given away $54,000 a year before it adds back. In other words, for each application they allow $27,000 of gifts made in any year outside five years.
Many couples have - until the recent law change - gifted $27,000 a year each to a trust. In this case , $27,000 of gifts per year would be allowed and the second $27,000 would be added back.
Any additional gifting on top of the threshold is added back in the Financial Assessment calculation by WINZ .
What if you’ve gifted more than the allowable amount for Residential Care Subsidy?
It is added back into the financial means assessment and may affect your entitlement to the subsidy depending on how much gifting is involved.
Is there an amount that is allowed to be gifted when a person applies for a benefit?
No, for all other assistance WINZ consider if the gift has lead to you depriving yourself of an asset,or income from that asset, that would affect your entitlement to assistance or the rate of benefit you receive.
Can you still get a benefit if you have assets which are in a trust?
It depends, WINZ will take into account situations where people have deprived themselves of income/assets when they have placed their assets in a trust.
Will WINZ change their approach when gift duty goes?
Will WINZ continue to take assets in family trusts into account when assessing entitlement for benefits?
What the Current Asset (in your Own Name) Limits that are exempt from the Residential Care Eligibility Assessment and you may retain?
- Person has partner in care or no partner- $210000 plus personal effects plus $10000 pre-paid funeral expenses
- Person has partner not in care- Either $210000 or $115000 + house + car
If you have gifted assets will you still get a benefit?
It depends, WINZ will consider whether or not gifting your assets has directly or indirectly changed your financial position to qualify for a benefit or increased rate of benefit. If WIZ consider that you have deprived yourself of assets or income as a result of gifting, then they can include these in your assessment as if you haven’t gifted them. Refer the Case Study below
Mary Bloggs scenario for Residential Care Subsidy:
Mary Bloggs puts her assets in a family trust when she starts a business, so creditors couldn’t get access to them if her business was unsuccessful. Mary immediately starts gifting away her transferred assets at $27,000 each year. Over the years, her business was very successful and grows within the trust. Mary also adds other investments to the trust. Eventually she sells her business (although her original reason for establishing the trust has gone she keeps the trust on). Mary reaches the age of 80 and is needs assessed as requiring residential care. Because her assets are all transferred to the trust, she applies to WINZ for a financial means assessment to see whether or not she is financially eligible for the Residential Care Subsidy to help meet the cost of her care. Mary states on her application that she has no assets. For the purposes of this example, we'll say that she is way beyond the five year gifting period.
There are several factors that are to be taken into account when assessing a person’s financial eligibility to the Residential Care Subsidy. Each individual case is fully reviewed before a decision can be made. This scenario includes the addition of some other factors which might commonly occur and to explain how these factors might influence the decision.
In the Application Form for Residential Care Subsidy, Mary was asked a specific question on trusts "Are you, or have you or your spouse/partner (if you have one), ever been a settlor, transferor, trustee or beneficiary of a trust?” Mary ticked "yes" to that question and filled in the space for the name of the trust the "Bloggs Family Trust". Mary felt her intention to enter into the trust (for business reasons) was important, so she put this down on the form too.
The first part of Mary's financial means assessment is to look at her assets. The WINZ Case Manager determines whether the combined value of Mary’s assets were above, at or below the current asset threshold applicable to Mary’s circumstances. The means assessment also looks at whether or not Mary had deprived herself of an asset by her decision to place her assets in the Bloggs Family Trust. Although it was clear Mary hadn't established the trust in order to financially qualify for the residential care subsidy that does not mean WINZ could simply disregard the trust.
A guide to assessing the deprivation is contained in Regulations which set out that in the period before the gifting period (that is, more than five years before applying) WINZ should disregard $27,000 of gifting per year. Mary established the Bloggs Family Trust some time ago, and even at a rate of $27,000 per year, all the assets of the Trust were effectively "discounted" from her means assessment (as to assets) long before the last five years before she applied.
Apart from the assets in the Trust, Mary had only a few low value assets and she came under the current threshold for subsidy. For the year 1 July 2011 to 30 June 2012 – a single person is allowed maximum assets of $210,000. A couple with one in care have the choice of $210,000 or the option of $115,000 with the value of their family home and car exempt from the means assessment. However, the second step in the financial means assessment is to assess Mary's income. The Trust had a lot of assets, and generated (and was capable of generating) a lot of income. The Trustees had made a resolution that no income would be paid to Mary from the date she entered rest home care. This was made on the basis the trustees believed she was entitled to free rest home care, having had a needs assessment by the relevant District Health Board (with Mary refusing to ask the trustees to reconsider that decision).
The WINZ Case Manager looked at the income the Trust was earning and considered Mary as having deprived herself of income, first, because the income was stopped and second because she declined to seek assistance from the Trust to help meet with the cost of her care. As a result an income charge was calculated and Mary was required to contribute that amount to her costs of care. Even though Mary was a discretionary beneficiary, and the trustees had to consider the other beneficiaries, WINZ were entitled to regard Mary as having been the original owner of the asset and by placing it in a trust (for whatever reason) as having deprived herself of the income. The consequence was that the income the Trust was earning should have been applied to her costs of care.