And perhaps with good reason, as people in rest home care in the 1990’s had to pay until they were down to their last $15,000, which disinherited a quite a few families. Helen Clark’s Labour government increased the rest home fee thresholds to $100,000 and $200,000 in the mid 2000’s, making the rules somewhat fairer.
- Trusts no longer have any real tax advantages
- Rest home fees are not the big issue that they were
- Some of the people who set up trusts have lived a long time in retirement
- And their investment funds are gradually shrinking
Why do their funds shrink?
- They are trying to have a life – and why not ? – but that needs money
- Inflation and increasing living costs eat into retirement savings and investments
- Unexpected expenses - their car wears out, they need a new roof, or a new hip, etc.
From time to time I meet people with family trusts whose investment funds are down to $200,000 or below. Their income is national super plus investment income:
- For a couple $28,000 super + $8,000 interest = $36,000 pa
- Living alone $19,000 super + $8,000 interest = $27,000 pa
As I understand it, a chartered accountant has to produce a full set of books for a family trust.
That typically costs $1,500 pa and is a big chunk of their not big income (ouch).
What if they invest outside their trust?
If their funds are invested outside a trust;
- only need a simple tax return
- accountant’s fees down to $300 to $400 pa
- the trust would only own a house
- and can then file a zero tax return
- no cost for the trusts tax return
The potential savings
If you can save say $1,000 pa accountancy fees x say 10 years, that is a $10,000 saving.
But make haste slowly – do your research or get advice first.
Step one – review how rest home fees might affect you
Only 5% of people in NZ end up in a rest home. If you do, WINZ will pay your rest home fees if:
- For a couple – one at home and one in rest home – total assets are below $119,709 not including the value of their house and car.
- Only one alive and moving to a rest home - total assets below $218,598, which will include the value of their house and car.
If your house has been in a trust for a long time, WINZ might* not include it.
*Might or might not – WINZ rules can change anytime.
e.g. They could decide to include a trust’s assets for rest home subsidy tests. (They can and do in Australia).
Maybe - could change – might – might not – no obvious clear answer.
Step two - review your need for a trust
Do any of these apply to you ?
- Provision for someone with special needs (a sick or disabled child).
- Protection against the re-introduction of estate (death) duties.
- Preventing wayward children from wasting their inheritances.
- Protection of your children’s inheritances if their marriage fails.
- Succession planning – keeping a farm or business in the family.
- Protecting assets from creditors – commonly done by many professionals.
- Protecting assets in the event of your 2nd marriage (or 3rd or 4th or 5th).
- Taxation issues.
Step 3 – if in doubt, get advice
This is a topical discussion and we are not recommending anyone take any action based on this article, as there may be other implications. However if your trust is creating high accountancy fees that concern you, then talk it over with:
- Your accountant
- Or your lawyer
- Or your financial adviser
- And maybe your family
- Make sure the advice does not cost more than the fees you hoped to eliminate
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is now available.
Alan is an independent authorised financial adviser (AFA) FSP26532.
His disclosure statement is available on request and free of charge.