In October 2011, gift duty was abolished which meant that any
amount of money could be given (or forgiven) to people/trusts
for whom one has ''natural love and affection'' without
paying gift duty.
This was particularly important to the many New Zealanders
with discretionary trusts who had been previously diligently
forgiving outstanding debt between themselves and their
trusts to the maximum untaxed amount of $27,000 per annum.
At that time, many tax advisers, accountants and lawyers
sought to remind their clients that there were lots of
factors to be considered before accelerating a gifting
programme, For example, business risk, potential creditors,
solvency, relationship property disputes, the aims of the
trust and who the beneficiaries are, are all matters that
could lead to serious consequences for the unwary.
At the same time, clarification was sought from the Ministry
of Social Development on how the removal of gift duty would
impact clients' entitlement (if any) to residential care
subsidies to pay for rest-home fees.
Despite what many ordinary Kiwis had hoped to achieve by
moving their assets into trusts, the message from the
ministry was clear - the rules about residential care
entitlements did not change with the removal of gift duty;
residential care subsidies are for people who need them and
cannot afford to pay for their own care.
As well as this affirmation, the ministry, perhaps
surprisingly, advised that the acceptable limit for gifting
funds into a trust for reasonable asset protection purposes
is $27,000 per year per application, not per person.
Irrespective of whether this position was originally intended
or via a previous oversight, this meant that the actual limit
was $13,500 each per annum for a couple, and that many
couples had inadvertently been making ''excessive'' gifts (of
$27,000 each or $54,000 combined) to their trusts for many
Thus, where couples had thought they had effectively gifted
part of their estate to a trust so as to be eligible for
residential care subsidies, they were sadly mistakenA recent
case has now affirmed without doubt what Crowe Horwath and
others have been advocating for almost two years in respect
of this issue.
The late Mrs B of Whangarei and her husband set up a family
trust in 1987 and made gifts of $27,000 each per year between
1987 and 2004. In 2009, Mrs B moved into a rest-home and her
application for a rest-home subsidy was declined due to her
assets considerably exceeding the limit for eligibility. All
gifts made by Mr and Mrs B collectively in excess of $27,000
per year were counted back as personal assets.
It was asserted that this was a test case and a significant
number of otherwise successful applicants would now be
ineligible for the residential care subsidy. With greatest
sympathy for the family in this case, and the others to
follow, we can only agree that this is the outcome under the
current stated rules. If you are impacted by this scenario,
we recommend you talk to your adviser. If you feel aggrieved
by this scenario, we recommend that you talk to your MP.
- Scott Mason is the NZ managing principal of tax advisory
for Crowe Horwath.