Appeals against disallowed benefits provide hints of where means-testing could go as the population ages.

The Social Security Act and regulations associated with it allow Work and Income to include assets gifted away by people in their lifetimes, for example to a family trust, in the asset tests for means-tested benefits such as the residential care subsidy or the sickness benefit.

But the Social Security Appeal Authority (SSAA) appears to believe Work and Income could take a wider interpretation of section 147A which allows it, at the discretion of the chief executive, to conduct a means assessment as though people had never gifted their assets.

A recent ruling indicates Work and Income could further widen its assessment of what constitutes a person depriving themselves of assets and income.

The ruling involved a man who gifted all his assets to a family trust and then directed commercial efforts to building them up. The SSAA noted that Work and Income had only focused on the dollar value of the assets gifted into the trust in the late 1980s and early 1990s, and had not made any assessment of “other ways” in which the man and his wife had deprived themselves of assets.

It appears to indicate the SSAA believes Work and Income could decide that capital appreciation of assets in trusts could also be included in means-testing.

The interpretation of statutes can change over time.

In 2002, one popular trusts manual advised readers that current policy was for gifts five years' ago to the likes of trusts would be counted for the residential care subsidies. Avoiding means-testing for residential care subsidies was considered one of the selling points of trusts.

Today, the five-year rule is gone, and the decisions of the SSAA show how current decisions are being made.

Trust expert Jonathan Cron from New Zealand Trustee Services said people can only make asset-protection decisions based on current law, but things like statute, regulations, and their interpretation could change. In the case of means-testing, they will change further.

"The regime we will enter into will be harsher than we have had," said Cron.

He warned that people making "massive" gifts following the removal of gift duty last year might one day rue it.

The $27,000 regulation An 81-year-old in residential care with a wife living at home was turned down for the residential care subsidy. He disclosed total assets of $125,358, but it was found he had deprived himself of assets through gifts to a family trust and to a son, to whom he gifted half his farm. When taking into account the gifted assets, Work and Income found he "had" assets worth $371,400. Regulation 9 currently allows the couple to gift away a combined $5500 in each of the last five years before the subsidy was applied for. It also allows for gifting of $27,000 a year in any year before that, covering both partners.

Result: The man lost his appeal. The half gift of the farm was not included in the asset calculation leading the committee to decide the couple had been treated “very fairly”.

Open door to tougher rules

A women living in a rest home was refused a residential care subsidy because of the assets she and her husband gifted into a trust between 1987 and 1996 on which they were the settlors, trustees and beneficiaries. The trust now had some $2.6m of assets.

Result: The appeal was dismissed, and the committee had some pointed comments to make: “Having put their financial resources and no doubt their time and energy into building up the resources of the trust rather than their personal estates they must now look to the trust for the appellant's support whilst she is in residential care.”

It added: “We note in passing that to date no assessment has been made of other ways in which the appellant and her husband have deprived themselves of assets for example by placing all of their financial resources in a trust and subsequently conducting their financial affairs through the trust or their apparent failure to request income from the trust since the application for residential care subsidy was made.”

HOW MUCH CAN YOU HAVE?

If you are over 65, the residential care subsidy is means-tested. From July 1, those with a spouse or partner in residential care, or who do not have a spouse, must have combined total assets valued at $213,297 or less to qualify, and this will include their vehicle and their family home.

Those with a spouse or partner who is not in care can choose a threshold of either: combined total assets of $116,806 not including the value of their house (when it is their principal place of residence) and car, or: combined total assets of $213,297 including the value of their house and car.

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