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Gifting and residential care subsidies

By Tara Hurley - 23 Aug 2013

The practice of a couple gifting $27,000 per annum each to a trust ($54,000 per couple) has existed for many years. This was the limit that could be gifted before gift duty tax was imposed prior to the abolition of gift duty on 1 October 2011. Gifting the maximum allowed before the imposition of gift duty also ensured that assets were transferred to a trust as efficiently as possible to give best effect to asset protection and estate planning schemes. 

The High Court's recent decision in B v MSD will come as a shock to those who believed that by completing a gifting programme at $54,000 per annum per couple, they would automatically be eligible for a residential care subsidy.

The Ministry of Social Development (MSD) assesses all applications for residential care subsidies by considering applicants' assets and income (a financial means assessment). The current thresholds are set out by the MSD at the link below.

MSD's assessment also includes consideration of gifts made, so that if you or your spouse/partner has given away assets, these assets may still be counted in your financial means assessment.

Gifts of up to $6,000 per year made in the five years before you apply can be excluded from your financial means assessment. Gifts of more than $27,000 per year made before the five year period may be considered "deprivation", in which case MSD may assess the value of the "excess gift" in your financial means assessment. 

An example of how MSD apply this policy was highlighted in B v MSD when Mrs B applied for a residential care subsidy. Mr and Mrs B set up a family trust in 1987. As was typical of the time, Mr and Mrs B annually gifted $27,000 by way of forgiveness of debt to the trust. In completing its financial means assessment of Mrs B, MSD ruled that that there had been deprivation, as the gifting done by Mr and Mrs B totalled $54,000 per annum. Mrs B appealed the decision. The appeal was ultimately heard and dismissed by the High Court when Justice Collins confirmed that the MSD was right to apply the threshold of $27,000 per year in gifting per couple not per person.  

The case of B v MSD has now been appealed to the Court of Appeal with a hearing scheduled for this month. We will let you know the outcome of this appeal as soon as it is known. No matter what the outcome of the appeal, B v MSD highlights the broad discretion MSD has when considering applications for residential care subsidies and the authority it has to conclude that a person has deprived or otherwise given away their rights to assets and income. 

Please contact our specialist trust and estate planning team if you have any questions about gifting or residential care subsidies.

Links

Work & Income information for individuals regarding residential care subsidies

Contacts

Tara Hurley

Lewis Grant

 

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