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Residential Care Subsidy: seven myths and misunderstandings

10 Jul 2023

| Author: Vicki Ammundsen

Entitlement to residential care subsidies can be polarising. The relevant legislation is contained in the Residential Care and Disability Support Services Act 2018 (the RCS Act) and the Residential Care and Disability Support Services Regulations 2018 (the RSC Regulations), which came into force on 26 November 2018.

The RCS Act and the RCS Regulations represent a rewrite of existing policy and provisions formerly contained in the Social Security Act 1964. The re-written legislation was intended as a policy-neutral review that preserved the previous legislative regime, with updated language and terms.

But this confusion about MSD policy continues. The following non-exhaustive list sets out some of the key myths and misunderstandings that persist:

  • The $27,000 deprivation limit was abolished when gift duty was abolished in 2011. This is not correct.
  • There is no difference between gifting $270,000 10 years ago and gifting $27,000 per year. This is not correct. Gifts outside the five-year gifting period cannot be spread forwards or backwards.
  • MSD is bound by an agreement for the purposes of s 21 of the Property (Relationships) Act 1976. No, it is not. See G B As Executor of the Estate of E B Of Whangarei v The Chief Executive of The Ministry Of Social Development [2013] NZCA 410 at [10], where the Court of Appeal refers as follows: Ms Jagose for the respondent submitted that to the contrary, the Act and Regulations created a regime where couples, whether they have a marital or de facto relationship, are treated as unitary economic units for the purposes of the aggregation and deprivation of assets. She submitted that the clear words of the Act, interpreted 4 B, above n 3, at [79]. purposively, meant that total per annum gifting per couple that would not constitute deprivation was limited to $27,000 per annum.
  • If you “over-gift”, you can never qualify for a residential care subsidy. This is not entirely correct. MSD will accept a “trust reversal” where an applicant for a residential care subsidy would qualify “but for the trust”. However, MSD policy is that a trust reversal can be carried out where the trust holds the original property transferred by the settlors and requires that no residual assets or benefit are retained by the trust.
  • If trustees refuse to pay for care, there is nothing MSD can do. The issue here is not MSD, but rather the contract regarding the provision of care. Contracted care providers are not required to offer care to a resident who will not meet the cost of care
  • You pay the same for long-term residential care wherever you are in New Zealand. This is not correct. The rules about residential care subsidies are the same nationwide. However, the maximum contribution will depend on the region in which care is provided. This amount is notified annually in the Gazette.
  • Family loans are disregarded for residential care subsidy purposes. This is not correct. A loan is an asset that must be declared for means-testing purposes and will also be taken into consideration for income assessment purposes. If interest is not charged on a loan, whether the loan is to a family member, third party or trustees of a trust, MSD can assess the income that was forgone. This treatment of loans followed the Court of Appeal decision in Chief Executive of the Ministry of Social Development v Broadbent [2019] NZCA 201, where the Court of Appeal held that MSD’s prior policy of attributing trust income (real or notional) to applicants who had made gifts to trusts by way of forgiveness of debt. As stated at [98]:

It is plain nonetheless that the controversy between the Chief Executive and Mrs Broadbent is not finally resolved by that answer. That is because, when the Authority focussed directly on income from trust assets in calculating deprived income, it was in error. It should have focussed instead on the deprived income (if any) of the debt back, that is, any interest free component. We accept Ms Aldred’s submission that the Authority probably did not have sufficient evidence before it to resolve whether the $27,000 “gifts” were deprivations at all (for example, Ms Aldred submitted there could have been no depravation (sic) in substance if the Broadbents enjoyed free accommodation – see above at [65]), and if they were, whether they were deprivations of property or income or a mix of both. It follows that when reconsidering its determination in accordance with the judgment of the High Court, the Authority must also undertake a further factual inquiry into these matters.

Vicki Ammundsen is a director and notary public at Vicki Ammundsen Trust Law. She presented a paper on Residential Care Subsidies at ADLS’ recent Cradle to Grave conference ■

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