Don"t Let the Government Take the House
User pays Today we live in a 'user pays' society and if you have saved for retirement and paid off the house it just might be that you are disadvantaged, at least when it comes to senior care.
That hardly sounds fair does it? But the fact is that it costs between $40,000 and $42,000 per annum to keep a person in senior care and with more and more people going into care as the baby boomers hit retiring age and beyond, the New Zealand government simply cannot afford to cover this cost.
By doing the prudent thing and saving for your retirement and paying off the mortgage on the family home you have very likely decreased your eligibility for a residential care subsidy under the current rules.
For some time now, the cost of keeping a person in senior care has been subject to a 'user pays' regime and qualifying for a residential care subsidy has been subject to you first using your assets and income until you reach the allowable levels.
So, what are the asset thresholds? You may recall that the previous Labour government changed the thresholds effective from the 1st of July 2005 and decreed that the asset limits would rise by $10,000 with effect from July 1 in each year until in theory asset testing would no longer exist.
As of 1 July 2009 a single person (or a couple where both are in care) may have $190,000 in assets and a couple where only one is in care may have $95,000 in assets in addition to the family home, which is exempt while a partner or dependent child are living in it.
The foolproof way to protect your assets is of course to transfer them to a family trust in an appropriate and timely fashion.
If after weighing matters up you feel that a trust is not a viable option for you, perhaps because you feel that you may have left it too late and time is not on your side, the fact of the matter is that there are other options available to you.
The sad thing is that often people have not been advised by their lawyer of simple matters relating to how you own your property and how this can affect your eligibility for an asset tested subsidy.
Property Ownership Issues There are two common legal forms of joint ownership of property and the purpose of this part of the paper is to inform you of the differences between those forms of ownership, and to outline the reasons why you might choose one over another and, to consider how the manner in which you own your property can affect your eligibility for an asset tested subsidy!.
The first of the common forms of legal ownership is the Joint Tenancy.
A majority of married people and many others in qualifying relationships under the law, own their properties as joint tenants.
The significant feature of this form of ownership is that on the death of the first owner, the property automatically passes to the survivor by way of a rule of law known as Survivorship.
It does not matter what is in your Will, or for that matter, whether you even have a Will, your surviving partner will take the entire property in his or her own name.
The property is not administered under the Will of the person who has died.
This can have far reaching consequences which we will outline in this part of the paper.
The second common form of legal ownership where two (or more) people own property together is the Tenancy in common.
Quite simply, this form of ownership allows for property to be owned in distinct shares.
The most common form is tenancy in common in equal shares, but, by creating a tenancy in common, ownership can be in unequal shares.
Significantly, the rule of survivorship does not apply and as a consequence what happens to your share of the property on your death depends entirely on what you state in your Will.
You can choose to leave your share in any given property to someone other than your surviving spouse, should you so desire.
How can the way in which we own our property influence our eligibility for a Rest Home Subsidy? As has been stated, if property (and by this we mean all property whether it be real or personal) is owned as joint tenants, on the death of the first owner, the property passes to the survivor.
If the last surviving owner should at some later stage require either long stay hospital care or rest home care, they will have to meet Work and Income criteria before qualifying for any assistance in the form of a residential care subsidy.
The family home is included as an asset and must be declared.
The home will often need to be sold to pay for rest home care.
You may qualify for assistance before the sale of the home by arrangement with Work and Income but they would take a charge known as a Residential Care Loan (similar to a mortgage) over the home.
Any funds advanced for your care against the home are then repayable when the home is ultimately sold.
Because of this situation, there is a strong possibility that you should consider a tenancy in common as your preferred form of ownership.
We will now consider in more detail the reasons why.
Life Interest Will As stated earlier, if property is owned by two or more persons as tenants in common, they are free to leave their share of the property in such manner as they choose in their Will.
We will look specifically at the situation of a husband and wife who together own their family home as tenants in common in equal shares.
By owning your property in this manner, you are then able to leave a type of Will, known as a life interest Will.
As you would do normally, you appoint one or more trustees (say for example your children) to administer your estate after your death.
The significant difference is that you then leave your share of the property (in this case a half share) to your trustees and instruct them in the Will that they are to allow your surviving spouse to live in the property for the remainder of his or her lifetime.
Upon the ultimate death of the survivor, the share of the property then goes to the final or residuary beneficiaries (more often than not the children).
The significance of this is that the survivor now owns in his or her own name only a one half share of the property.
The other half share is then recorded on the Certificate of Title as being in the name of the Trustees of the estate and to be dealt with as specified in the will.
Therefore, should the survivor ever end up going into care and wishing to apply for a residential care subsidy, in making any declaration to Work and Income about the extent of their assets, they do not need to declare ownership of the other half of the dwelling, quite simply because in law, they do not own it.
They enjoy only a life interest in that half share of the property.
So, although the family home might still have to be sold (or at least charged by Work and Income as discussed earlier in this paper) to pay for your care, only the sale proceeds from the half of the property owned by you (subject to the allowable asset limits) needs to be used for your care.
Because residential care subsidies are also income tested, if the family home were sold and the proceeds from the sale of your late spouses share invested, the income from that would also need to be used for your weekly care.
Significantly though, the capital is preserved and upon the death of the survivor, it goes to the final or residuary beneficiaries (more often than not the surviving children of the marriage or relationship).
There are strong anti avoidance provisions in the Social Security Act and the Chief Executive of Social Welfare is able to set aside a transaction which might be deemed to have had the effect of intentionally depriving you of an asset which might otherwise have been available to pay for your care.
The message to be noted is that timing is everything.
We strongly advise you to consider the tenancy in common and the use of life interest wills as an option if you feel it is too late for you to set up a family trust.
If this step is taken in a timely fashion and as a genuine estate planning and succession tool it ought not to be challenged in any way by Work and Income.
The writer is a specialist in senior law and you are invited to contact him via his firm's web site which is
That hardly sounds fair does it? But the fact is that it costs between $40,000 and $42,000 per annum to keep a person in senior care and with more and more people going into care as the baby boomers hit retiring age and beyond, the New Zealand government simply cannot afford to cover this cost.
By doing the prudent thing and saving for your retirement and paying off the mortgage on the family home you have very likely decreased your eligibility for a residential care subsidy under the current rules.
For some time now, the cost of keeping a person in senior care has been subject to a 'user pays' regime and qualifying for a residential care subsidy has been subject to you first using your assets and income until you reach the allowable levels.
So, what are the asset thresholds? You may recall that the previous Labour government changed the thresholds effective from the 1st of July 2005 and decreed that the asset limits would rise by $10,000 with effect from July 1 in each year until in theory asset testing would no longer exist.
As of 1 July 2009 a single person (or a couple where both are in care) may have $190,000 in assets and a couple where only one is in care may have $95,000 in assets in addition to the family home, which is exempt while a partner or dependent child are living in it.
The foolproof way to protect your assets is of course to transfer them to a family trust in an appropriate and timely fashion.
If after weighing matters up you feel that a trust is not a viable option for you, perhaps because you feel that you may have left it too late and time is not on your side, the fact of the matter is that there are other options available to you.
The sad thing is that often people have not been advised by their lawyer of simple matters relating to how you own your property and how this can affect your eligibility for an asset tested subsidy.
Property Ownership Issues There are two common legal forms of joint ownership of property and the purpose of this part of the paper is to inform you of the differences between those forms of ownership, and to outline the reasons why you might choose one over another and, to consider how the manner in which you own your property can affect your eligibility for an asset tested subsidy!.
The first of the common forms of legal ownership is the Joint Tenancy.
A majority of married people and many others in qualifying relationships under the law, own their properties as joint tenants.
The significant feature of this form of ownership is that on the death of the first owner, the property automatically passes to the survivor by way of a rule of law known as Survivorship.
It does not matter what is in your Will, or for that matter, whether you even have a Will, your surviving partner will take the entire property in his or her own name.
The property is not administered under the Will of the person who has died.
This can have far reaching consequences which we will outline in this part of the paper.
The second common form of legal ownership where two (or more) people own property together is the Tenancy in common.
Quite simply, this form of ownership allows for property to be owned in distinct shares.
The most common form is tenancy in common in equal shares, but, by creating a tenancy in common, ownership can be in unequal shares.
Significantly, the rule of survivorship does not apply and as a consequence what happens to your share of the property on your death depends entirely on what you state in your Will.
You can choose to leave your share in any given property to someone other than your surviving spouse, should you so desire.
How can the way in which we own our property influence our eligibility for a Rest Home Subsidy? As has been stated, if property (and by this we mean all property whether it be real or personal) is owned as joint tenants, on the death of the first owner, the property passes to the survivor.
If the last surviving owner should at some later stage require either long stay hospital care or rest home care, they will have to meet Work and Income criteria before qualifying for any assistance in the form of a residential care subsidy.
The family home is included as an asset and must be declared.
The home will often need to be sold to pay for rest home care.
You may qualify for assistance before the sale of the home by arrangement with Work and Income but they would take a charge known as a Residential Care Loan (similar to a mortgage) over the home.
Any funds advanced for your care against the home are then repayable when the home is ultimately sold.
Because of this situation, there is a strong possibility that you should consider a tenancy in common as your preferred form of ownership.
We will now consider in more detail the reasons why.
Life Interest Will As stated earlier, if property is owned by two or more persons as tenants in common, they are free to leave their share of the property in such manner as they choose in their Will.
We will look specifically at the situation of a husband and wife who together own their family home as tenants in common in equal shares.
By owning your property in this manner, you are then able to leave a type of Will, known as a life interest Will.
As you would do normally, you appoint one or more trustees (say for example your children) to administer your estate after your death.
The significant difference is that you then leave your share of the property (in this case a half share) to your trustees and instruct them in the Will that they are to allow your surviving spouse to live in the property for the remainder of his or her lifetime.
Upon the ultimate death of the survivor, the share of the property then goes to the final or residuary beneficiaries (more often than not the children).
The significance of this is that the survivor now owns in his or her own name only a one half share of the property.
The other half share is then recorded on the Certificate of Title as being in the name of the Trustees of the estate and to be dealt with as specified in the will.
Therefore, should the survivor ever end up going into care and wishing to apply for a residential care subsidy, in making any declaration to Work and Income about the extent of their assets, they do not need to declare ownership of the other half of the dwelling, quite simply because in law, they do not own it.
They enjoy only a life interest in that half share of the property.
So, although the family home might still have to be sold (or at least charged by Work and Income as discussed earlier in this paper) to pay for your care, only the sale proceeds from the half of the property owned by you (subject to the allowable asset limits) needs to be used for your care.
Because residential care subsidies are also income tested, if the family home were sold and the proceeds from the sale of your late spouses share invested, the income from that would also need to be used for your weekly care.
Significantly though, the capital is preserved and upon the death of the survivor, it goes to the final or residuary beneficiaries (more often than not the surviving children of the marriage or relationship).
There are strong anti avoidance provisions in the Social Security Act and the Chief Executive of Social Welfare is able to set aside a transaction which might be deemed to have had the effect of intentionally depriving you of an asset which might otherwise have been available to pay for your care.
The message to be noted is that timing is everything.
We strongly advise you to consider the tenancy in common and the use of life interest wills as an option if you feel it is too late for you to set up a family trust.
If this step is taken in a timely fashion and as a genuine estate planning and succession tool it ought not to be challenged in any way by Work and Income.
The writer is a specialist in senior law and you are invited to contact him via his firm's web site which is
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