Gene Wilder is a good example of why it’s important to plan TODAY what will happen to your estate upon you passing away.
By Hayley Boud
Gene Wilder died of Alzheimer’s disease. Although Wilder’s estate is reportedly to have a net worth of around $20 million, there have been no hints of family disputes over it. This indicates that Wilder did the proper estate planning prior to the disease preventing him from having capacity to do so. There is a good lesson here for all of us. No one knows what tomorrow will bring. A sudden head injury or stroke could happen to any one of us and in a matter of seconds the mental capacity to be able to plan our estate is lost. TODAY is the day to for YOU plan your estate.
What are the reasons for estate planning?
Putting in place the right estate plan for you will ensure your wishes are fulfilled upon you passing away and can protect your assets from future creditors, relationship property claims, ensure certain assets are transferred intact to the next generation and may also enhance your eligibility for government entitlements such as residential care subsidy.
Protection against future creditors
Your assets may be at risk from future creditors if you are a director of a company. In order to best protect your assets, we recommend setting up a family trust and transferring your assets in an ongoing gifting programme. The assets owned by the family trust will no longer be owned by you personally and do not form part of your personal estate. As such, the assets in the trust are not available to the Official Assignee in bankruptcy and are therefore protected against any of your future creditors.
However, it should be noted that protection is not absolute. There are situations where a family trust may not protect your assets against claims of creditors. For example, a family trust cannot provide protection against existing creditors. The transfer of assets to a family trust can be reversed by a court where:
The person transferring the property has been declared bankrupt within two years of the transfer;
- The transfer was made with the intention of defeating the rights/claims of another person;
- The transfer was made with the intention of defeating creditors;
- The transfer has the effect of defeating creditors (intentional or not); and
- You were unable to pay your debts at the time you gifted the assets.
If you believe your assets may be exposed to business risk, then we recommend you set up a family trust and transfer your assets into the trust as soon as possible to protect those assets from the risk of something going wrong later.
Protection Against Relationship Property Claims
If you have been married or in a de facto relationship for at least 3 years, under the Property (Relationships) Act 1976, your relationship property (including the family home, even if you bought it prior to the relationship) is deemed to be owned equally between you and your spouse/partner (irrespective of who actually owns it). This continues to apply after you have passed away.
Your surviving spouse or partner can choose to apply to the High Court for a division of the relationship property or they can accept what they are entitled to under your will (if you have one) or under the intestacy rules (if you don’t have a will). This means that your spouse or partner may be entitled to more under the Property (Relationships) Act than you would like.
For example, you may have children to a first marriage whom you would like to leave the majority of your estate to. If you don’t have a will and your estate is less than $155,000, under the intestacy rules, your entire estate will be left to your spouse or partner and there will be nothing left for your children.
Also, if you leave your estate to your children, their partners/spouses may have a claim on the assets as part of relationship property. Furthermore, if you leave your estate to your spouse/partner and they re-marry, the assets which you expected to be passed on to your children may end up as relationship property in the second marriage.
Estate planning can protect your estate against relationship property claims and ensures your intentions for your estate are fulfilled upon you passing away. One way of achieving this would be through what is known as a contracting out agreement (a pre-nup). Under section 21 of the Property (Relationships) Act you may contract out of the protections under the Act. You may make any agreement between yourself and your spouse or partner that you think fit with respect to your property (including future property).
Another option is a life-interest will. This allows your spouse or partner to live in your family home until they either pass away or move out permanently. Then the family home may be transferred directly to your children.
Enhance Eligibility Entitlements to Government Benefits
Of concern to many New Zealanders is means testing for Government benefits and subsidies. Of particular concern is the Residential Care Subsidy. If you need long-term residential care in a hospital or rest home, you may be entitled to a Residential Care Subsidy from the Ministry of Health. This subsidy assists with the cost of your care and is paid directly to the hospital or rest home.
Your eligibility for the subsidy will depend on your income and assets. Thresholds for the year 1 July 2017 to 30 June 2018 are as follows:
- if you are single or have a partner in care, the total value of your assets must be $224,654 or less.
- if you have a partner who is not in care, you can choose whether the total value of your assets is either: (a) $123,025 not including the value of your house and car; or (b) $224,654 including the value of your house and car.
Your house can only be exempt from the financial means assessment when it is the principal place of residence of your partner who is not in care, or a dependent child.
If you or your partner give away assets, they may still be counted as assets in your financial means assessment. You may gift up to $6,000 each year in the five years leading up to your application for the subsidy and $27,000 per year prior to that five year period. Eg, if both you and your partner apply for the Residential Care Subsidy in 2018, gifts of $6,000 each per year can be excluded from 2013 to 2018. Gifts of more than $27,000 per year can be excluded prior to 2013 (for couples, gifting is $27,000 in total, not per person).
The best way of doing this is to set up a family trust and transfer your assets out of your name and into the trust at $27,000 per year. Another way of protecting your assets is to create life interest wills.
Life interest wills provide an effective means of enabling the surviving spouse to obtain residential care subsidy through having only half of their joint assets taken into account in the Residential Care Subsidy assessment.
For example, Hayley and Theodore own a house valued at $300,000, have $50,000 in their bank account and no car. This totals $350,000 which is greater than the subsidy threshold. If Hayley died and Theodore went into care, he would not be eligible for the subsidy straight away. It costs around $50,000 for care in a residential home per year. As such, Theodore would have to pay around $50,000 per year until his assets went under the subsidy threshold of $224,654.
By establishing life interest wills and transferring the ownership of the family home from joint to tenancy in common, both Hayley and Theodore have a distinct half share of the family home and the bank account.
If Hayley passes away, Theodore will be left with his half-share of the family home and the $50,000 in the bank plus a life interest in Hayley’s half of the family home. If Theodore subsequently requires residential care and the family home receives a net sale of $350,000, Theodore now has $225,000 ($175,000 from his half share of the family home and $50,000 in the bank account). Theodore may gift $6,000 and establish a funeral trust for up to $10,000. This means Theodore now owns $209,000 and is eligible for the subsidy.
Conclusion
If you do not have an estate plan already in place or you put it in place a number of years ago, we strongly recommend that you seek legal assistance TODAY to ensure YOUR wishes are fulfilled upon you passing away. It is particularly important to seek advice from a lawyer who specialises in the field. For more information please feel free to contact us on 07 838 0808 or hayley@ghlaw.co.nz