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On the 1st July this year, the asset threshold for Residential Care Subsidies increased by another $10,000. This follows on from the significant increases effective 1st July last year, which set new rates to $150,000 for single people and married couples both in care, or either $55,000 not including house and car for those who have a partner not in care, or $150,000 including a house & car (you can choose whichever suits you best). These increase by $10,000 per year, on the 1st July.
Essentially Residential Care Subsidies are a WINZ benefit to subsidise the cost of residential care for those who cannot afford to pay for it themselves.
The basis on which you qualify for the subsidy is the sum total of your assets at the time you apply. There are a number of circumstances however that determine how your assets are measured and at what level these will affect your eligibility for a subsidy. It is important that you understand how these work in order to factor the likelihood of requiring rest care into your estate planning.
There are two important factors to consider from the outset – are you likely to require residential rest care in the first place, and if you do is getting a Government subsidy for that care really all that important?
As to the first question, I have to go back to the 1998 census, which states that 4.9% of all those aged 65 - 75; 5.7% of those aged 75-84 and 24.5% of those aged 85 and over live in rest homes. (2006 census results are not yet available, or my internet search skills aren’t up to finding them)
As to the second question it will cost you a minimum of $636 a week to be a resident in a rest home at today’s rates. If you can predict far enough ahead to say that even if you do require care sometime in the future and today’s equivalent of $636 will not be an issue then you are in an envious position.
If you fail the asset test described above, then you will have to pay for your rest care until you use up enough money to fall below the threshold at the time.
Let’s now have a closer look at this threshold. If you are both in care, then there is not much of a problem. From 1 July this year you are allowed a maximum of $160,000 in assets. Everything above that will be used to pay for your rest care. You are taken care of, and when you both die your family will inherit whatever is left. Not great for the inheritance of your lifetime assets perhaps, but you will at least be taken care of with a minimum of stress.
What I am really concerned about is the second, and most likely scenario – 1 partner in care, 1 at home. Say they owned a house worth a modest $350,000 (at today’s rates). They would naturally elect to be measured against the $65,000 threshold, which doesn’t include the value of the house. Let’s say that they also had investments put aside for their twilight years of $200,000. The income stream from these investments provides them with a comfortable lifestyle when coupled with their pensions.
If one of them has health problems to the extent that they can no longer be safely looked after at home, then they will have to apply for residential care. This is when the asset test comes in. As of today, they would be eligible for the $65,000 threshold and the house & car would not be tested. This means that their carefully planned lifetime investment must be used to help pay $636 a week for rest care until it reduces to $65,000. What must also be considered is that while the $636 provides a standard care facility, if you want the extras such as ensuite, TV etc you can end up paying considerably more. Sure, the healthy partner keeps the house but you can’t eat it. In this scenario there would be a continuous reduction in income and an almost inevitable increase in stress and perhaps related health issues.
After planning their retirement so carefully, how could they have prevented this situation arising? The best tool available for estate planning is still the Family Trust. To see how this could have helped our couple we have to wind the clock back 12 years.
Their house was worth, say, $250,000, and their investments $128,000. They formed a Family Trust and sold the total assets of $378,000 in return for a debt owed by the Trust. They then entered into a gifting program of $54,000 a year for 7 years. They ceased gifting 5 years prior to the requirement for rest care, so when they were asset tested, both the house and the investment were completely owned by their Family Trust and not subject to the asset test. (It should be noted here that any gifts made in excess of $5,000 within 5 years prior to applying for a rest care subsidy will be added back for asset testing purposes.)
Family Trusts however can play a far greater role in asset protection than merely increasing the likelihood of qualifying for a Residential Care Subsidy. The overriding principle is the same in all cases, however, in that for a Trust to be effective it must be set up well in advance of the event – in most cases 5 years absolute minimum.
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