When his wife died in 2001, she released the trust from having to repay her loan, thereby transferring her remaining personal wealth to the trust. The husband continued his gift programme.
He went into care in 2009, a means assessment was conducted by the Ministry of Social Development (MSD) and he was granted the subsidy.
For some reason, his financial position was re-assessed and this led to the recent decision which saw some profound changes in the approach taken by MSD and the appeal authority.
Essentially, the authority concluded that the applicant and his wife, by setting up and operating the trust, had "deprived" themselves of wealth and therefore MSD could quite properly ignore the existence of the trust structure and assess the husband's entitlement as if the trust assets were all his.
The authority concluded that the purpose of the transaction was not the test, but rather that they had deliberately embarked on the scheme.
The decision does not reveal what other family members were involved in the trust, how it was developed, and who else it supported. But it does reveal that the farmland is now a highly valuable vineyard and the assets transferred now have a value of nearly $2.2 million.
It is possible the applicant was not the champion of the trust's success, but that of his family. Some may suggest the decision reveals a maturation in policy thought by the Crown agency to cut through the "device" of a trust and get to the heart of a family's finances. That is a social policy issue, akin to death duties, but it does make the job for lawyers quite vexed.
Since the introduction in 2008 of the new means testing rules, lawyers have advised on traditional interpretative lines, particularly that the "deprivation" (the new testing methodology) was not the action of completing a transfer to the trust. That action was merely a transfer of investments held by the applicant.
The traditional approach was that the subsequent gifting of the debt back to the trust was the deprivation. Clear rules were prescribed, and adopted by practitioners, particularly allowing for a gifting tolerance of $27,000 per annum, with only $6000 per annum in the five years before an application.
The decision also illustrates how far the authority will go to give effect to the new legislation through its ruling that the wife should not leave her assets to the trust. She should have left her estate to her husband and, because she didn't, she (although dead) was included in the definition of "spouse" at the time he applied for the grant. The authority suggested that his failure to sue his wife's estate under the relationship property rules was illustration of the scheme of "deprivation".
The authority also criticises applicants who direct their efforts to building up assets of others (for example, a family trust), and investing in activities that have high capital growth with low income growth. It could be suggested the authority recommends self-interest before the advancement of children's interests. The new law does allow for some discretion to be exercised by MSD to not apply this "deprivation" test in suitable cases. This new case, unfortunately, gives no example of how MSD might do so.
