NZ Herald 28 October 2023

AThis is a good time of year to be thinking about this, when your children or grandchildren — or perhaps nieces and nephews or friends’ children — are making plans for next year.

As you point out, readers don’t have to stick with your percentages. It could be just 10 per cent for an A and so on.

I do have some concerns though:

• It might discourage students from taking the tougher subjects, in which almost nobody gets an A pass.
• If some family members are more academic than others, it could seem unfair — and could possibly even discourage someone from doing tertiary study at all. “I don’t want to finish up with a bigger debt than my siblings”.
• Looking back at my student days, I can think of some compulsory courses that didn’t “deserve” many hours of work because I knew I wasn’t going to use that knowledge later.
• When I discussed this idea with a friend, he commented, “Some people’s offspring are obviously more co-operative students than ours were. Neither bribery nor threats seemed to have much effect on their academic application. They turned out fine in the end, but despite, rather than because of, their schooling. I blame the parents!”

Let’s just conclude that the idea might work brilliantly in some families, less so in others. But it’s certainly worth considering — and discussing with the students.

AIt depends how you define “soon”. I was referring to the fact that a family doesn’t have to wait until the holder of the KiwiSaver account would have turned 65.

But you’re right. If the person has written a will, in many cases the family has to wait for probate to be granted, which many take a few months.

However, this is not the case if the KiwiSaver balance is less than $15,000. The relatives simply apply to the provider, with a copy of the death certificate.

What if the person dies without a will? The whole process of dealing with their assets, including KiwiSaver, gets complicated, and can take anywhere from six months to two years or so.

There are two messages here: Write a will. Also, clearly it’s a good idea to leave a note with your will saying who your provider is.

AThat’s a bit rough. Some of my lawyer friends are not exactly rich, and nor are their employees!

One, who notes that he is “not hauling in huge amounts of filthy lucre from estate administration”, comments, “What the correspondent may not consider is the extra work that is incurred from squabbling, greedy beneficiaries of wills, who are more often than not siblings”.

Still you make some fair points. It’s reasonable to ask for an itemised bill.

For those who want to take some steps in the process themselves, Community Law gives info on “dealing with the deceased’s property” here. That organization also offers free legal help to people who don’t have much money or are vulnerable in other ways.

By the way, you might like to look at Community Law’s website to see an example of the philanthropic work many lawyers take part in. They are not all money grubbers.

AThe short — and stupid! — answer is: hope it doesn’t happen to you.

At first glance, the odds seem good. “At 31 March 2020, of a population of around 790,000 aged 65-plus at that time, about 4.4 per cent were in Aged Residential Care (ARC),” says Claire Dale of the Pensions and Intergenerational Equity (PIE) research hub at the University of Auckland.

But she adds, “This small percentage disguises the reality that over the course of retirement, the probability of being in ARC is much higher, and around half the older aged population will use residential care at some point.”

Still, not many stay for ten years, like your acquaintance.

“The average age of a person living in residential care is 85 years. However, there is significant variation in the entry age, and length of stay ranges from a few days to over ten years. Median length of stay in a rest home for someone receiving government funding is just 1.7 years,” says Dale.

Residential care costs range from about $73,000 to $116,000 a year. See this page.

Many people get help from the government with care costs. But is it enough help for enough people? Let’s look at who is eligible.

If you are 65 or older, you are expected to use your savings and sell assets to pay for your long-term care in a hospital or rest home until your asset total is reduced to a specified amount. After that, if your income is insufficient, the government will help to pay. The allowed asset amount varies, as follows:

• For a single person or a married couple both in care, the total is $273,628. If you have a house and car, they are included in your assets.
• A married couple with only one person in care can choose between a total of $149,845 while excluding your house and car, or $273,628 while including them. If you don’t own a house or car, or if they are of low value, the second option may be better.

Other assets included in the total are cash, savings, shares and other investments including investment properties, boats, caravans and campervans and some types of life insurance policies.

Not included are your personal belongings, household items and any funds held in a recognised funeral plan.

To stop people from getting around these rules, loans made to others, including family trusts, are included in your asset total.

And if you have gifted some of your assets over the years, their value may also be included. That depends on how much you have given, and how recently. More on this next week.

Nor can you get around the gifting rules by selling your assets at a low price to a friend or relative. “If you sold an asset, Work and Income will check whether the amount you sold it for was reasonable,” says the Citizens Advice Bureau.

There’s also an income test, which depends on the type of income. “There are no limits on the income that you can earn, but any income that a resident earns above the exempt income amount will go towards the cost of their care,” says Te Whatu Ora.

For info on the Residential Care Subsidy, see this Work and Income page and this Te Whatu Ora page or phone the Residential Subsidy Unit on 0800 999 727 or [email protected].

Where does all this leave us?

“While long term care at a very basic level is paid for by government if you have little by way of assets and income, and the rich can easily cover their own costs, it is a very expensive risk faced by many middle-income retirees who have only modest assets and income and don’t qualify for a subsidy,” says Susan St John of the Pensions and Intergenerational Equity (PIE) research hub.

“They will have no idea of the size of that risk nor of how to budget for it in retirement. Neither do insurers, so that it is no surprise to find you can’t buy an insurance policy to protect yourself.”

Change is needed, argues St John.

“Suppose at 65 you have a lump sum of $200,000. While there is some data that tells you how long a person lives on average, there is a huge spread of the age at death around that average. Outliving that lump sum is a real possibility.

“Moreover, it is not just that you don’t know how long you will live, you don’t know if you will need long-term care, nor whether such care will be for only a few weeks or more than ten years. Nor do you know the level of that care you will need or the costs of extras like dental care, hearing aids and specialist care or a superior room,” she says.

“With a looming tsunami of older baby boomers needing care, it is time we talked about ways to better share the costs of outliving savings. An insurance option suggested by PIE is a state-protected indexed annuity that can be bought at age 65, and that increases if long-term care is needed.”

I like that idea. How about it, new government?