Joint Tenancy Ownership – Wills and Residential Care Subsidies
If you and your spouse or partner own a property or multiple properties, it is important to think about how that property will be dealt with once you pass away. The way you wish to deal with your property or interest in it, will need to be specified in your Will and what is appropriate will depend on how you own the property.
Joint Tenancy vs Tenancy in Common
There are two common forms of property ownership in New Zealand, being joint tenants or tenants in common.
Many couples own their property as joint tenants. What this means if one of them dies is that the ownership of the property automatically goes to the survivor by way of “survivorship”, regardless of what is said in the deceased’s Will.
In contrast, if the couple owns the property as tenants in common, (often in equal shares), then each person can decide what happens to their share of the property by dictating who will take it under their Will. Therefore, survivorship does not apply.
Tenancy in Common and Wills
If a couple owns the property as tenants in common, it is common for them to include a clause in their Will that allows the survivor to remain in the home for the rest of their life, or until they need to vacate (for example, to go into care). The trustees under the Will hold the deceased’s share of the property on trust to allow the survivor to live there and make use of the property until they vacate. Often the Will will specify that the occupation is to be rent free and that the survivor must keep the house maintained and insured. Upon the survivor’s death or vacation, the deceased’s share of the home then goes to the beneficiaries named under their Will.
Tenancy in Common and Residential Care Subsidies
Owning a property as a tenant in common can also be helpful for Residential Care Subsidy purposes as it reduces the assets owned by the person requiring care. WINZ offers fee subsidies to help people entering rest home or hospital level care. However, the subsidy is only given to those who meet the WINZ asset testing threshold as those who have the resources to support themselves are not deemed as needing of public resources.
Assets that are taken into account include properties, cars or vehicles, bank account funds, investments, shares, even money that has been loaned or gifted away (if it is above the amount allowed by WINZ). Exempt assets are the value of furniture and personal belongings and up to $10,000 worth of pre-paid funeral expenses.
In terms of the asset threshold (as at 1 July 2015 to 30 June 2016), the thresholds are in two levels – Threshold A and Threshold B. (Please note that the assets threshold amount changes every July).
Threshold A – $218,598.00
If you are a single person, or if you are a couple and both of you require rest home care, or you are a person whose spouse/ partner is not a resident requiring care but who has elected to have Threshold A apply to them, your assets must be under $218,598.00 in value.
Threshold B – $119,709.00
If you are a couple and only one of you requires rest home care and the other has not elected to have Threshold A apply to them, then you must have assets either below $119,709.00 excluding the couple’s home and car.
For those who are above the threshold, they have to wait until their assets diminish to below the threshold before they can start benefiting from the subsidy. Until then, they must pay for their own care. This may involve selling the family home or other assets in order to raise enough funds for the care.
Assets may be diminished by gifting away $6000.00 a year per single person or couple (the permitted amount by WINZ for those in the 5 years before applying for care) and $27,000 per single person or couple outside those years. Alternatively assets may be sold, but of course then the funds become an asset. Giving assets away or selling them below their value will be seen as a deprivation of assets. Likewise, any excessive gifting or loaning of money, no matter how long ago it was done, will be counted as an asset.
If a property is owned as joint tenants when the first spouse/ partner dies, the survivor will then own the whole property by way of survivorship. Should they then require rest home or hospital care, the whole of the value of the house would be taken into account for the asset threshold test. If they had owned the property as tenants in common, only the survivor’s share would be taken into account. Therefore, a way of protecting against this may be by putting assets into tenants in common ownership. If the surviving spouse only owns a half share of the property, there is less for WINZ to include in the assets test.
Retirement planning is often left until people are nearing retirement but as can be seen from the above, it is something that needs to be considered carefully. It is best to plan ahead and sort out your affairs with a lawyer as soon as possible. Wills can always be updated as circumstances, laws or ideas change. It is worth noting that this is an area of law/WINZ policy that is continually evolving and what was effective planning in the recent past may no longer be the case.
If you would like to speak to someone about your retirement planning and get your affairs in order for your circumstances, please contact your Saunders & Co advisor.