It has now been 3 years since gift duties were abolished by the Inland Revenue Department, and since then it has been and continues to be possible to gift all debt owed in one lump, rather than incrementally. The ripple effects of this change are far reaching with other government departments taking advantage of this “spotlight on trusts” to reinterpret or clarify their policy on how they deal with Trusts themselves. Most notably the Ministry of Social Development which has for some time been looking into ways of importing the assets of a trust and attaching them to the individuals who settled them in the first instance, in order to enlarge the assets held by a person for means testing purposes. This is most notable in relation to an individual’s ability to qualify for a rest home subsidy.
For some time one of the many reasons individuals may have established a trust was to divest themselves of their assets in the belief that this would bring them within the means tested thresholds applying to Rest Home Subsidies in the event such care is required. Irrespective of the moral or ethical perspective of such matters, MSD’s position is quite clear that there is only so much money available for such purposes, and with a rapidly aging population, it is necessary that those funds be protected for those who really “fall through the gaps” and have no other means of paying for their care.
Whilst such a stance appears to have little regard to established Trust law and principles, the Courts also supported MSD’s position.
In Bridgford v MSD*, a case taken to test the departments approach, an elderly couple who had a long established trust with the gifting completed many years ago, the Court agreed that MSD’s approach in attributing the assets held by the individual’s trust to the individual for the purposes of means testing to qualify for rest home subsidies was the way forward.
The question now is: to gift in one lump sum or not? There are a myriad of factors which need to be taken into account, much like the myriad of factors which are taken into account at the outset of establishing a trust. Age, occupation, family circumstances and business/creditor risk are but a few of the considerations that clients and their lawyer will canvas in deciding the best course of action.
One thing however is certain, the policies of these government departments is not static and given time, the rules will no doubt change again. So, with the spotlight shining brightly upon the area of Trusts, it continues to be imperative that trusts are run efficiently and lawfully. With accurate and meaningful records of the trusts happenings. We find the easiest way of achieving this with our client trusts is via an annual general meeting of the trustees; more important now, than ever before.
If you wish to discuss the issues raised in this article in more detail please contact your trusted Harmans advisor.
*Bridgford v Chief Executive of the Ministry of Social Development [2013] NZCA 410
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