Life interest must be realisable to be included in means assessment

Clients applying for a Residential Care Subsidy need to tell the Ministry of Social Development if they have a life interest (also known as a lease for life) in their application.

A life interest must be included in the client's financial means assessment of assets if the life interest can be realised as a cash asset. A life interest is realisable as a cash asset if it can be converted into cash for the client to use towards the cost of their residential care.

If a life interest cannot be realised as a cash asset it is not included in the financial means assessment of assets.

You will need to factually determine whether or not the life interest is capable of being realised as a cash asset. If it is realisable, the life interest is valued as at the date of the client's application for a Residential Care Subsidy.

Factors that may indicate life interest is realisable:

• a value was attached to the life interest when it was given to the client (eg a value set out in the will or property agreement).
• it can generate an income
• there are minimum, if any, restrictions on the life interest
• a market of potential buyers for the interest exists

A life interest that gives the client broad rights with few or no limits to income from a property, or allows them to retain effective control of the property, is likely to have a market of potential buyers.

Factors that may prevent a life interest from being realised include:

Advanced age of the client

The life interest's value is linked to the client's age.

The older a client is, the lower the value of their life interest, and it is less likely the interest is going to be valuable or profitable to buy. This may support a decision that the life interest would not be a realisable asset.

However, if a property has increased in value it may still be realisable, regardless of the client's age.

Lack of willing buyers

If there is a very limited market of buyers for the life interest it may not be a realisable asset as the client cannot use it to meet the cost of their residential care.

• Example:
  Carol is widowed and has a broad life interest in the family home she owned with her husband Dennis. Carol allows their adult child, Donald, who is getting Supported Living Payment, and his dependent children, to live in the family home instead of renting it out or selling it. Donald will inherit the property when Carol dies and has no means to buy the life interest.

In this example we advise Carol that she needs to get an income from renting the property to Donald, if there is no intention or ability for him to buy her life interest. Carol asks Donald to start paying rent or outgoings on the property, which are treated as income for the means assessment of income.

Limited life interest

The fewer rights given to the client under the life interest, the more likely it is that it cannot be realised.

• Example:
  Edith holds a limited life interest after her family home was sold to her Family Trust. The life interest only gives Edith a right to occupy the property which ends when she enters residential care. She has no right to generate an income from the property. The property is not likely to be purchased or leased.
  The Ministry would not consider this as a realisable asset, and does not include it in Edith's financial means assessment.

Estate asset is a debt owed by the client

If the only asset held in the estate is a debt owed by the client for the purchase of a property the client lived in, the life interest cannot be realised by the client until the property is sold.

• Example:
  Marlene holds a life interest in her late partner Greta's estate. When their family home was sold, Greta's estate loaned all its cash to Marlene to buy a unit in a retirement village.
  Any residual interest that Marlene is due once the house is sold and the loan is repaid, would be a realisable cash asset at that point.