Residential Care Subsidy and Gifting

June 25, 2013

in Trusts

Trusts: GiftingSince the abolition of gift duty there has been a significantly greater focus by the Ministry of Social Development (“MSD”) on the criteria for residential care subsidies.

Many people have for a long time had a gifting programme whereby people forgiving advances to their family trust would forgive that debt at the rate of $27,000 per year each making the gifts per couple effectively $54,000 per year.

Once gift duty was removed MSD made it very clear that they were intending to enforce their stated policy of only allowing gifts of $27,000 per couple (i.e. per application) and $6,000 per year in the five years leading up to an application for residential care subsidy.

Given the prevalence of gifting regimes where $27,000 per person, rather than $27,000 per couple were undertaken this was subject to considerable criticism by lawyers and accountants and ultimately was challenged in Court.  The High Court however has recently found in favour of the MSD.  The Court has agreed with the MSD’s interpretation that allowable gifts were limited to $27,000 per couple if made outside the five year gifting period.

For many people the decision to gift $27,000 per person rather than per couple was the right decision to make in terms of the assessment of purpose for making the gifts and advancing the transfer of assets from the individuals to their trust.  Certainly if asset protection was the primary purpose of establishment of the trust then not only was that process correct at the time but it continues to be relevant.

Unless residential care subsidies are an essential planning requirement for your purposes then this decision of the Court will not have a significant impact, however, if eligibility for residential care subsidies is of importance to you then it may have important implications.

Is it also important to understand that the abolition of gift duty has not opened the door to an automatic decision to forgive all the debt owed by the trust to individuals as there are a number of considerations to take into account including eligibility for residential care subsidies.

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:

Paul Farry

09 379 0055 or 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. 

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