Estate Planning - Residential Care Loans
One of the most vexing questions that we face as we get older is how we will provide for ourselves into our retirement.
This necessarily includes planning to ensure that we have sufficient funds to meet our costs in the event that we are placed into long-term residential care or a rest home. In order to determine how much we will have to contribute to the costs of long term residential care, we need to be aware of the maximum asset threshold, above which we will no longer be eligible for a residential care subsidy ('the Subsidy').
The Subsidy
The threshold is reassessed on 1 July each year. From 1 July 2013 the threshold has been set at $215,132 for single people or for couples who are both in residential care. For a couple, only one of whom is in residential care, the threshold is $117,811, when the value of the home and car is excluded, or where combined total assets exceeds $215,132. Couples can only elect to have their assets excluded from the assessment where it is the principal residence of either a dependent child or the spouse or partner, who is not in residential care.
In assessing the eligibility for the Subsidy, Work and Income New Zealand ('WINZ') may include in your assets any gifts that you have made of more than $6,000 per annum over the preceding five years. WINZ may also include in your assets any one off gifts of over $27,000 per couple made prior to the five year period immediately preceding the application being made.
For those people who have assets above the maximum threshold and accordingly do not qualify for the Subsidy, WINZ offer a residential care loan scheme ('the Loan').
The Loan
The Loan is interest free and secured by a caveat registered over the borrower's home. This caveat prevents the property being sold until the debt owed to WINZ has been repaid in full.
People can apply for a reassessment of their eligibility for the Subsidy when their assets have decreased below that maximum threshold for the Subsidy.
The Loan can be drawn down at the rate of the maximum contribution towards residential care costs. From 1 July 2013 the maximum contribution ranges from $819 to $900 per week depending on where the borrower resides. This equates to between $42,588 and $46,800 for each 12 month period spent in residential care, while the borrower remains ineligible for the Subsidy.
The Loan has to be repaid either within six months of the death of the borrower or when the home is sold, whichever comes first. Given the modest threshold above which a person is not eligible for the Subsidy and the high weekly costs of the maximum contribution it is imperative that planning for retirement and asset protection begins as early as possible.
For any Estate or Wills enquiry, please contact John Stirling or Raechel Pedrotti.