Think before you gift – gift duty abolished but limits still apply for residential care subsidy.

February 13, 2012

in Trusts

You can now gift an unlimited amount tax free as gift duty has been abolished. Accordingly, while it is still necessary to properly record and document any gift that is made, there is no longer a need to report any gifting to the IRD. Please be aware though that this change only concerns the IRD and taxation.

If you wish to maximise your opportunity for eligibility for the government’s Residential Care Subsidy (RCS) you will need to consider the policy of the Ministry of Social Development in respect to means testing, and in particular the allowable limits on disposal of assets in any 12 month period. Any property disposed of that exceeds the allowable limits is a “deprivation” of assets and can be assessed as if the deprivation had not occurred (ie. the asset will be counted as a personal asset for the purpose of the means test).

For the purpose of the means test, an applicant will remain eligible for the RCS if their personal assets do not exceed the following current limits:

  • Where applicant has a spouse/partner in care or no spouse/partner the limit is $210,000 + personal effects + $10,000 for pre-paid funeral expenses
  • Where applicant has a spouse/partner not in care the limit is EITHER as above OR $115,000 + house + car.

Deprivation of property includes:

→        Gifts in excess of $6,000.00 per year in the 5 year period before application for a residential
care subsidy; and

→        Any gifts that exceed $27,000 in any 12-month period prior to the 5 year period.

The Ministry will not allow a lump sum gift, in excess of $27,000 in a 12 month period, to be carried over by treating it as a gift of $27,000 per year going forward (ie. where there are no further gifts made in subsequent years). This would have avoided the need to make gifts annually.  Regrettably, the Ministry has confirmed that if gifts of more than $27,000 are made in any 12 month period, regardless of the period of time that has elapsed since that gift was made, they will only allow one deduction of $27,000 in respect to that lump sum gift. The balance will remain as an asset of the person making the gift under the “deprivation” provisions. Therefore, you may wish to continue your gifting program as before.

This stringent approach goes further by the Ministry indicating that they may only allow one disposal of $27,000 in a 12 month period per couple per application. This means that the Ministry will take into account gifts made by the applicants spouse or partner when assessing whether a deprivation has occurred.  Where a couple each make an application for residential care subsidy at the same time, $27,000 each is permissible. However, it can’t be anticipated whether one of a couple will be making an application on their own or both parties will be making an application at the same time. For this reason, couples may wish to consider whether to continue gifting at the rate of $27,000 per person per annum or at the rate of $13,500 per person per annum in anticipation of how changes in policy or other events may fall in the future.

The Ministry have indicated that they will be paying much closer attention to dispositions of property made by an applicant to their family trust on the basis that if applicants have other means of funding their rest home care then these resources should be used in priority to seeking financial assistance from the government.

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Fahra Manning                                                         Richard Farry                          or    
09 379 0055                                                           03 477 8870

The information contained in this publication is intended as a guide only.  It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

Previous post:

Next post: