Monday, 22 May 2017

Trust Issues

The British Tories' proposal to take personal assets to pay for long term care for the elderly and people with dementia has proved so unpopular they have resorted to buying up Google ads in an attempt to stop people from reading about it and directing them to their website where their spun version of events is available.

Here in NZ there is a government subsidy for aged care which is payable when people have personal assets of less than $220k. Assets include savings and privately owned property, like houses. 

On the surface that seems reasonable - if you have a lot of assets you can afford to pay for your own care which frees up state provision for those who have no assets. However, dig beneath the surface and it’s demonstrably unfair and is heavily weighted in favour of the already affluent who are far more able to, and adept at protecting their assets because they can afford to employ accountants and financial advisors who know all the ways in which tax can be minimised, and access to state benefits can be maximized. 

They do things like create a Family Trust into which they settle their private assets. This can be done by selling the assets to the Trust or gifting them.  The settlors may make themselves discretionary beneficiaries, which allows them full and unfettered use and enjoyment of those assets until their death or the termination of the Trust, when their designated heirs - the final beneficiaries - inherit all the Trust’s assets or income from it.

The debt that is created when ownership of property is transferred to a Family Trust is considered to be an asset because the Trust owes the settlor/s the value of the property sold to it.  One way round that is to write off or forgive the debt.  Up to 2011 that could be done at a rate of $27k a year without incurring gift duty. 

So, if you had property worth let’s say, $1.5 million, which you settled in a family trust making yourself and your partner the discretionary beneficiaries and your children the final beneficiaries, writing it off at $27k a year meant it would take 55 years to completely forgive it.   

If you needed care, any monies that were owed to you were considered in the calculation of assets.  So, if you had forgiven $1m of the debt, the Trust owed you $500k which would take you over the asset threshold for aged care subsidy. 

In 2011 the National Party changed the law to allow people to forgive Family Trust debts in total and to gift additional assets without incurring duty.  One of the benefits of this was that people could transfer assets into a trust and forgive the debt more quickly, leaving themselves free to claim the full aged care subsidy - as long as the bulk of the gifting was done 5 years before claiming the subsidy which currently is in the region of $50k per annum.

It is not uncommon for people in retirement homes to have their license to occupy a unit owned by a FT which allows them to qualify for the state subsidy and receive a full state pension.  I know someone who - by virtue of having a microwave in her unit - also claims independent living supplement on her pension although all her meals / laundry / cleaning etc are provided by the facility.

My mother (who had assets over the threshold courtesy of the insurance settlement on her earthquake destroyed home) and who did not have the wherewithal to create hiding places for her assets, paid the maximum cost of her care until she died.  She was also personally liable for all the ‘extras’ the aged care sector pile on top of the $890-970 per week government subsidy (depending on area).  Pretty much anything that makes life in residential care a bit more tolerable, carries a significant additional charge.

There are other similar iniquities. If a person in receipt of an old aged pension or any other form of social welfare payment, is in hospital for more than 3 months, their pension or benefit, minus a small amount of pocket money, is clawed back by the government to offset the costs of the medical care. 

Only the state pension is treated in this way.  Someone can have substantial personal assets and be in hospital long term and not be expected to pay a penny but a pensioner on the basic state pension will simply have the bulk of it taken off them after 3 months.  

If the loss of that income threatens the person’s ability to maintain their home (payment of rates, insurance etc) they can make a case for those costs to be covered, but as with so much else, the onus is on them to do that, often in circumstances in which their ability to protect their own interests is at the lowest ebb.

So – if the Tories get in again and the UK follows NZ’s lead in forcing the sale of family homes to pay for care, there will be all manner of tax and banking loopholes that the affluent will be able to utilize to protect their assets.

And, if the care system is anything like it is here – the assets that a person is permitted to keep will be whittled away by all the things the state provision doesn’t cover which here includes the premiums imposed by the facility for such things as an en-suite shower room/toilet, a room with a view, a larger or a sunny room etc;  specialist visits (that are not publicly funded); transport to other services or to outside social events; toll calls, private phone or cell phone; newspapers, books or magazines; personal toiletries; recreational activities that are not part of the normal programme; hairdresser; dietician, podiatrist, or other services that have not been prescribed by a doctor and are not publicly funded; glasses, hearing aids and dental care.

Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows that the good guys lost
Everybody knows that the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes

Everybody knows
-Leonad Cohen

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