The establishment of a trust can significantly affect eligibility for residential care subsidies, which are financial supports provided by the government to assist individuals with the costs of residential aged care. Here’s a detailed overview of how trusts impact these subsidies:

Understanding Residential Care Subsidies

• Purpose: Residential care subsidies are designed to help individuals who require long-term care in a residential facility but cannot afford the full cost of care.
  
  
• Eligibility: Eligibility for these subsidies is generally determined by an asset test and an income test. The asset test looks at the total value of an individual's assets, including property, savings, and investments.

Impact of Trusts on Asset Testing

Asset Ownership

• Trusts and Asset Assessment: When assets are placed into a trust, they are no longer owned by the individual. This can potentially exclude those assets from being counted in the asset test for residential care subsidies.
  
  
• Non-Discretionary Trusts: If a trust is set up as a non-discretionary trust (where the assets are held for specific beneficiaries), these assets may not be considered part of the individual's personal assets for the purpose of the subsidy assessment.

Discretionary Trusts

Potential Issues: If a trust is a discretionary trust (where the trustee has the power to decide how and when to distribute assets), the Ministry of Social Development (MSD), which administers the subsidies, may assess the value of the trust's assets and distributions to the individual. This can complicate eligibility.

Trustee Distributions: If the trust has the ability to make distributions to the individual, those distributions may be treated as income, potentially affecting subsidy eligibility.

Look-Through Provisions

Deeming Rules: The MSD may apply ‘look-through’ provisions, where they consider the assets within a trust if the establishment of the trust was deemed to be a deliberate attempt to avoid asset testing for subsidies.

Five-Year Rule: If assets are transferred to a trust within five years of applying for a residential care subsidy, MSD may still consider those assets in their assessment. This is to prevent individuals from transferring assets to avoid paying for care.

Exemptions

Family Home

• Family Home Exemption: The family home is typically exempt from the asset test, provided it is occupied by the individual or their partner. If the home is placed into a trust, it may still retain its exempt status if it meets the necessary criteria.
  
  
• Trustee Occupation: If a family member continues to live in the home held by the trust, it may help maintain the property's exempt status.

Strategic Considerations

Planning Ahead: Individuals considering a trust for asset protection or estate planning should plan well ahead of applying for residential care subsidies. Timing and the structure of the trust can significantly influence eligibility.

RECOMMENDATION: It is crucial to seek legal and financial advice when setting up a trust, particularly with regards to residential care subsidies. This will ensure that the trust is structured in a way that aligns with the individual's long-term care needs and financial situation.

Conclusion

The effect of a trust on residential care subsidies in Aotearoa New Zealand can be substantial, influencing asset assessments and eligibility for financial support. While trusts can provide benefits such as asset protection, they must be set up carefully to avoid unintended consequences regarding subsidy eligibility. Consulting with legal and financial advisors is essential to navigate these complexities effectively.