Q&As

  • Reader prefers “taxpayer pays” rather than “government pays”
  • How do trusts affect the residential care subsidy?
  • Stats on retirement income confuse a reader
  • Book winners — six of the best

QLast week’s letter re the phrase “rule of thumb” reminded me of a phrase or inference I would like you to consider.

One occurrence of this pet dislike was in the same column. On the residential care subsidy, you wrote, “If your asset total is below a certain amount, the government helps to pay for your hospital or rest care costs.”

As part of the collective education of the investing fraternity, a reality lesson is required. The above phrase should be erased and replaced with “your fellow taxpayers help to pay”.

Other than the Government receiving investment returns for their/our investments in the likes of power companies, TV One and oil exploration royalties, the taxpayer provides the cash for the Government of the day to divvy out as they see politically advantageous.

I always have an interesting discussion with fellow Gold Card holders, reminding them that the free trip to Waiheke Island is not free but a tax merry-go-round activity.

AOh no, you’re raining on the Waiheke wanderers’ jaunt! But you make a good point — although I’m not going to do a “mea culpa” here because I make the same point quite often myself.

Actually, it’s particularly important when it comes to the residential care subsidy for people over 65.

While taxpayers pay for KiwiSaver tax credits, for example, the intention has always been that everyone in KiwiSaver can receive this government assistance. However, the residential subsidy is meant to help only those with limited wealth. And yet — as recent Q&As show — people get up to all sorts of tricks, like buying a more expensive house than they otherwise would, or investing in jewelry, to qualify for a subsidy that was never meant for them.

I fully agree with you that it would be great if these people would think a bit more about where the money comes from. In fact, just two weeks ago, I said, “wealthier people should pay their own way, leaving the government with more money to help, say, children in poverty.”

The next Q&A takes this whole issue one step further.

QYour recent correspondence regarding rest home subsidies was interesting.

I am disappointed that you didn’t address the issue of trusts. There must be many family homes owned by trusts. It is not clear to me how the ownership of such homes would affect the eligibility for rest home subsidies.

Is it possible for you to enlighten us in a future column?

AThis gets a bit complicated, so let’s take it one question at a time.

  • What are the basic rules?

If you are over 65, you may be able to get a residential care subsidy to help pay for long-term hospital or rest home care.

For singles or people who have a partner already in care, your combined assets must be less than $227,125 to get the subsidy.

If you have a partner who is not in care, you can choose between: $124,379 not including the value of your own house and car; or $227,125 including the value of your own house and car.

  • How would having a trust affect this?

For singles and couples who are both in care, having their house in a trust seems to be a big advantage. They no longer own the house and, and as long as they have gifted within the allowable rules — more on that in a minute — they will probably qualify for the subsidy unless they have considerable other assets.

By contrast, those who own a home not in a trust will in most cases not be eligible for a subsidy — although they may be able to get the subsidy paid as a loan until their assets are below the threshold, says the Ministry of Social Development.

For couples with only one partner in care, if their home is in a trust they can choose the second asset threshold — which means they can get the subsidy earlier, without having to use up so many of their own savings.

  • What does MSD say about this?

“You are correct that many family homes are owned by family trusts — and because of that, the home itself wouldn’t be included in an asset assessment for the Residential Care Subsidy,” says George Van Ooyen, Group General Manager Client Support Services.

“However, the asset assessment can include excess gifting, which may preclude entitlement to the subsidy.

“Most couples transferred their family home (and/or other assets) into their trust by way of a standard Inland Revenue gifting programme of $54,000 per year. However allowable gifting for Residential Care Subsidy purposes is different.

“The maximum that can be gifted more than five years before applying for the Residential Care Subsidy is $27,000 per year per application for the subsidy. If more than this has been gifted in any one year (e.g. a couple’s standard gifting programme) the Ministry has the discretion to include the excess gifting into the asset assessment, depending on the circumstances.

“Within five years of applying for the Residential Care Subsidy allowable gifting is $6,500 per year per application for the subsidy. Gifts larger than $6,500 in this period can be averaged forwards but not backwards.

“If the gifting assessment within this period results in excess gifting, it will be included in the asset assessment, there is no discretion to ignore it.”

  • Okay, that’s assets. What about income?

The MSD’s website says, “If you meet the asset threshold, Work and Income will also complete an income assessment.

“Any income that you and your partner are able to receive will be used to determine the amount you contribute towards the cost of your care.”

That income includes NZ Super, half of private super payments, trust or estate income, and some other income. Generally earnings on savings and investments are included, but small amounts are exempt. Your partner’s earnings from employment are also exempt.

Did you notice trust income in the list? “The Ministry often includes family trust income in the income assessment for Residential Care Subsidy,” says Van Ooyen. “This may be because the applicant is a beneficiary of their trust and income from the trust, or it may be because the applicant has deprived themselves of the trust income.” For more info on this, call 0800 999 727.

  • Still thinking a trust might be a good idea — if you take care with how you gift assets into it?

“Trusts can provide excellent long-term intergenerational asset protection,” says trust lawyer Vicki Ammundsen.

“However, if the only reason for settling a trust is ‘to get a residential care subsidy’, the costs of settling the trust, transferring assets to the trust and maintaining a gifting programme need to be measured against the likelihood of actually requiring long-term residential care (and if so for how long) and the realities of trust ownership.”

  • So how likely are you to need this care?

“The percentage of people aged 75-plus in residential care at any one time is trending down (from 11 per cent in 2006/7 to around 8 per cent in 2021/2),” says Claire Dale of the Retirement Policy and Research Centre the University of Auckland. This is “largely as a result of the ‘ageing in place’ policy — it is cheaper to provide a few hours of care a day to someone in their own home.”

But those numbers are just a snapshot at a particular time.

A 2015 paper suggests that 47 per cent of people over 65 will use residential aged care in their lifetime. And of people who live to 85, about 66 per cent will use that care.

That’s based on what was happening in 2006 to 2010 though. The “ageing in place” policy — and perhaps new initiatives to help cope with the ageing of baby boomers — may well reduce those chances.

  • If you go into residential aged care, how long will you be there?

The average stay in a US or UK nursing home is about two and a quarter years, says Dale.

In other words, many people don’t ever go into care. And of those who do, often it’s for a couple of years or less.

Ammundsen makes a good point.

QI read your last column answering the question “How much money do you need to retire?”.

The statistics of “60 per cent report less than $100 per week from non-government sources, and 75 per cent have more than half their income from NZ Super,” seem to contradict each other. Can you clarify please?

AIt’s a bit hard to get your head around those numbers at first. The quote came from a 2017 report for the Ministry of Social Development called The Material Wellbeing of New Zealand Households. It applies to single people over 65.

What it means is that, over and above NZ Super and other government money, 60 per cent receive less than $100 extra a week.

Then there’s another 15 per cent — to get us to 75 per cent — who get more than $100 extra a week, but not all that much more. NZ Super still makes up more than half their income.

For couples, it’s 30 per cent in that first group, and another 25 per cent in the second group — bringing the total to 55 per cent.

Six of the Best

Here are the winners of my new book, “Rich Enough? A Laid-Back Guide for Every Kiwi”. The book is mainly about eight steps to get your finances sorted, but also includes a discussion about how much money we need to be happy.

Contestants had to say in 16 words or fewer why they wanted a copy of the book. Heaps of people entered. You made me laugh, ponder and at times almost cry. Thanks so much to everyone who had a go.

The six that I liked best are:

Thank you Mary
Your financial steps eight
Will finally deliver me
To my first home’s gate

— Uzra Casuri-Balouch

Need this book because —
when my daughter said
“I’m fed up being poor” —
I cried.

— Martin White

Your wisdom will avert the prospect of a subsistence existence in an unheated caravan beyond Bluff!

— Sarah Matthewson

He’s gone!
After fifty years
What do I do
to allay my fears?
Lead me on.

— S J Bosomworth

O sweet Mary I’d love your new book
For I’m broke and my accountant’s a crook!

— Gillian Holm (no relation)

Please pick Nick,
Financially thick,
but Mary’s book should do the trick!

— Nick Page

I will be in touch with the winners to get your addresses.

This article was amended on 25 January 2019. Since publication, Ms Dale has said that the statistics she quoted regarding the percentage of people in residential care at any one time applied to those aged 75-plus, not 65-plus as originally stated. This article has been updated accordingly.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.