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Appendix D

Effect of Proposals on Support for the Elderly

Introduction

A14 THIS APPENDIX DESCRIBES the impact of the Commission’s proposals on the entitlement of older people to State support. Where two people who live together receive welfare or superannuation benefits, and one of them dies, how do testamentary claims affect their rights to these benefits?

A15 The major features of the present support system for the elderly are

• • New Zealand Superannuation (which is $249.50 gross per week for a single person, $368.86 per week for a married couple), and
• • two subsidies¹⁹⁸ for older people living in long-stay continuing care which establish:

– a provider subsidy to meet any costs of care over a “cap” of $636 per week, and
– in cases of financial need only, a consumer subsidy to meet all or part of the remaining costs.

A16 Superannuation, and the second of the two subsidies, are affected by the beneficiary’s means and assets, and are directly relevant to the issue. The first subsidy (meeting the costs of long-stay continuing care over and above the “cap”) remains unaffected by the existence of a testamentary claim by or against the will-maker.

New Zealand Superannuation

A17 On the death of a spouse or de facto partner, the will changes the way the couple’s property is owned. These changes in ownership can affect the survivor’s superannuation rights.

A18 While both partners are alive and receive New Zealand Superannuation, they will pay (in addition to their ordinary income tax) a special tax surcharge of 25% of their additional combined income over $135¹⁹⁹ per week, or (separately) $67.50 per week for each partner.

A19 The couple can arrange the ownership of their capital and income so that they get the maximum taxation advantage. For example, the less well off can combine their incomes for surcharge purposes so that they pay no surcharge at all. The better off, with income well in excess of $120 per week, can ensure that all their income-earning assets are held by one partner. The remaining partner’s superannuation is unaffected by the surcharge.

A20 On the death of one partner the survivor (usually) acquires all or most of the assets of the marriage. There will no longer be an opportunity to put all the earning assets into the hands of the other surcharge-payer partner. On the other hand, the superannuation payments and exempt income levels are somewhat higher (before deduction of tax a married person whose spouse is also receiving superannuation is entitled to $184.33 per week, whereas an unmarried person living alone is entitled to $249.50: Social Welfare (Transitional Provisions) Act 1990 s 6, First Schedule, cls 1(a), 1(c).

A21 But there is nothing to prevent the couple organising their affairs on death in any way they like. The surviving partner is not required to make any testamentary claim which is available. There is no restriction on trusts or other arrangements designed to ensure that the survivor receives the full amount of superannuation. The surcharge is based on what a person in fact earns, not on what he or she might earn if they enforced all their legal rights.

A22 It follows that neither the present testamentary claims law, nor the Commission’s proposals, can or should affect this state of affairs. The courts, like the testator, should be able to take into account benefits which the surviving spouse will derive from superannuation (see paras 95–100).

Example 17:

A and B are married. All the assets are held in A’s name. They are worth $100 000 on A’s death. A leaves only $30 000 to B and the rest to a discretionary trust, the capital being payable to A’s niece on B’s death. B does not seek recourse either to her trust, nor does she make a testamentary claim.

B’s Superannuation Surtax is levied only on income (if any) derived from investing the $30 000 she actually receives, after B’s exemption has been deducted.

The Draft Act will continue to permit couples to arrange their affairs so as to rely on the receipt of New Zealand Superannuation to the greatest extent possible.²⁰⁰

Subsidy to meet costs of long-stay continuing care under the “cap”

A23 To avoid confusion, we should explain that the term “beneficiary”, as used here, describes the person in receipt of the benefit. From the point of view of testamentary claims, the “beneficiary” has two other roles:

• as a potential claimant in the estate of his or her wife, husband or de facto partner; and
• (on his or her own death), as a will-maker who is expected to meet the claims of his or her carers, dependants and family members.

A24 Being able to make a testamentary claim has a considerable impact on a surviving partner’s right to the subsidy for long-stay residential care, because the subsidy is a means-tested benefit rather than a universal entitlement. This long-stay continuing care subsidy differs in three basic ways from the entitlement to New Zealand Superannuation:

• the subsidy is directly means-tested (not paid out and later tax surcharged on the basis of the beneficiary’s actual income);
• the beneficiary’s assets (apart from the last $6 500) as well as his or her income must be applied to the cost of his or her care (see also para A18); and
• the beneficiary is expected

– not to make gifts or trusts which diminish his or her ability to meet the costs of his or her care, and
– to make a claim under the Family Protection Act 1955 in any case where his or her spouse has previously died without making adequate provision for them.

The subsidy will be means-tested accordingly (irrespective of the resources the beneficiary actually holds).

A25 SPOUSES – BENEFITS AND CLAIMS – If a beneficiary’s spouse or de facto partner dies while they are in care and all the couple’s property passes to the beneficiary, this property will of course be included in the asset-testing assessment. Knowing this, a spouse or partner may be inclined to leave less (perhaps even none) of his or her property to the beneficiary. But the beneficiary will, under the Commission’s proposals, have a right to claim in the estate. Following the present law, it may be expected that those administering the asset-testing regime will wish to ensure that the beneficiary makes the claim.

A26 The Commission proposes that spouses’ and de facto partners’ property entitlements (see chapters 4 and 5) should be treated as a claim as of right, and should automatically be included in the asset-testing regime (for the reasons given in para 107). The practical effect would be that the beneficiary is credited with one-half of the couple’s combined assets, unless it can be shown that he or she was entitled to some lesser sum.

A27 However spouses’ and de facto partners’ support claims proposed in chapters 4 and 5 should usually be seen as personal (for the reasons set out in paras 120–129). The welfare authorities should not be able to include the potentiality of such a claim as an asset of the beneficiary. Nor should they be able to put pressure on the beneficiary to take proceedings to enforce a support claim.

A28 This means that if the beneficiary is in care when the partner dies, half the couple’s assets can be preserved to meet the testamentary obligations of the beneficiary’s spouse or partner. This is not unreasonable because, during any lengthy period of care, the couple’s assets will most likely have been diminished under the asset-testing regime. The income and assets of the spouse or partner will have been included as beneficiary income, except for the couple’s income not exceeding $28 927 per year and the couple’s assets exceeding $40 000 and the couple’s house and car.

Example 18:

A and B are married. The couple’s assets, worth $300 000, are again in A’s name alone. A goes into long-stay continuing care, and for over 2 years A pays $30 000 each year for his care. This reduces the couple’s assets to $240 000. A then dies, leaving a life-interest only to B with the capital going to their children.

In this example, B has a property division of $120 000 against A’s estate. This division may be taken into account as part of B’s notional assets by the Department of Social Welfare for the purposes of the long-stay residential care subsidy. But B’s support claim is not to be taken into account unless she chooses to make it. If B goes into long-stay care on A’s death, she will receive no subsidy from the RHA towards the cost of long-stay residential care until 4 years after A’s death (when the $120 000 will have been exhausted).

A29 OTHER CARERS AND DEPENDANTS – BENEFITS AND CLAIMS – An older person in care may have responsibilities for the support of minor or disabled children. The older person may also have obligations to others (often children) who looked after them at home before they went into care.

A30 Various administrative arrangements have been introduced to reduce some of the harsh effects of the asset-testing regime on other people who may have been living with, and caring for or dependent on, the beneficiary before the beneficiary entered care. These arrangements have recently been extended in these ways:

• If a dependant of the beneficiary was living in the beneficiary’s house, the house need not be sold as long as the dependant continues to live there. The amount which would otherwise have been contributed by the beneficiary is secured by an interest-free mortgage on the house. This now applies after the death of the beneficiary, as well as before.
• The beneficiary may make gifts totalling $5 000 per year before going into care without being treated as having diminished the estate.
• The beneficiary, after entering into care, may now give up to $25 000 to a person who has cared for the beneficiary during the previous five-year period. This is by way of recognition from the State for having – presumptively – saved the taxpayer the expense of residential care during that period.

A31 These administrative dispensations, very properly, do not give the dependant or carer any direct right to the beneficiary’s assets. They merely take away the asset-testing consequences which would otherwise follow if such arrangements are made. The arrangements can only be made,

• when the beneficiary is alive and competent, by the beneficiary;
• when the beneficiary is not competent, then (unusually) by the beneficiary’s personal representative or attorney, assuming that the representative

– has power to make the arrangements, or
– is authorised to do so by the court;

• when the beneficiary is dead,

– under the beneficiary’s will, or
– with the consent of those entitled under the will, or
– by reason of a successful testamentary claim.

A32 It should not be assumed that the beneficiary, their family, or the court is necessarily obliged to make such arrangements for a dependant or carer. It may be that the care was given without any intention that there should be special recognition. Neither the beneficiary nor their family may wish to give continued support to a carer or dependant left in the house after the beneficiary goes into long-stay care or dies.

A33 The Commission’s present proposals fill in the gap, at least for contributors. On the death of a beneficiary, carers or dependants (other than spouses or

de facto partners) should be eligible for a testamentary claim award allowing them the benefit of property exempted from asset testing by the Government’s administrative requirements if

• they have contributed to the beneficiary’s estate, or have been promised a testamentary gift as recognition of benefits conferred on the beneficiary (see chapter 9); or
• they are the beneficiary’s children who are

– under the age of 20, or
– under 25 and undertaking education or training, or
– disabled when under 25 (see chapter 6).

A34 In other cases a carer or dependant eligible under the Government’s administrative criteria would not be able to make a statutory claim. That person would have to rely on the goodwill of the beneficiary or, failing that, the people entitled under the beneficiary’s will.

Example 19:

A, who is very elderly, has been supported for the last 15 years by his daughter C. C lives with him, receiving only a welfare benefit. A has a house worth $75 000, and a bank deposit of $30 000. He goes into long-stay residential care for a year before his death, during which time C remains in the house. On his death the house is encumbered by a mortgage of $30 000 to the Department of Social Welfare. In his will, A leaves all his property to C and his 5 other children equally. The children cannot agree on what is to be done.

C brings a contributor’s claim against A’s estate, which the court values at $75 000. The sum of $25 000 is taken from the bank account and applied to C’s claim. This sum is allowed as the $25 000 gift dispensation, which recognises that C’s contribution to her father’s care saved the taxpayer the expense. C requires another $50 000 to meet her claim in full. The estate’s obligation to pay this sum is converted by the court into a specific award giving C the right to live in the house for (say) the next 10 years. At the end of the 10 years, the Department of Social Welfare gets the house to meet the balance of its claim, and any residue is paid (according to the will) to A’s 6 children in equal shares.