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The rest home subsidy myth.
"Put your assets in a trust and you'll qualify for the government subsidy." It's a common belief. It's also wrong. Here's how the Residential Care Subsidy actually works under New Zealand law.
Myth vs reality.
Understanding where this misconception comes from and why it doesn't hold up.
"If I put my house and savings into a trust, the government will have to pay for my rest home care because I won't own any assets."
Work and Income (MSD) looks beyond legal ownership. They assess gifts you've made, income from trust assets, and whether you've deprived yourself of assets to qualify for the subsidy.
How the Residential Care Subsidy actually works.
Under the Social Security Act 2018, the government assesses your financial situation to determine whether you qualify for help with rest home costs.
Asset Thresholds
To qualify for the subsidy, your assessable assets must be below certain thresholds (2025/2026 figures, subject to change):
These thresholds are updated annually. Check with Work and Income for current figures.
What Gets Assessed
It's not just what you "own" on paper. The assessment includes:
- All assets owned personally
- Assets gifted within gifting thresholds (see table below)
- Income you receive (including from trusts)
- Assets you've "deprived" yourself of
Enduring Power of Attorney required
If you are helping a family member apply for the subsidy, you'll likely need an Enduring Power of Attorney to act on their behalf. This should be arranged before they lose capacity.
Learn about EPAsGifting thresholds.
When assessing subsidy eligibility, Work and Income looks at gifts you've made to trusts (or anyone else) and adds back amounts exceeding these thresholds.
| Time Period | Annual Allowance | What This Means |
|---|---|---|
| Last 5 years | $8,000/year | Gifts over $8,000/year in the past 5 years are added back to your assets |
| Beyond 5 years ago | $27,000/year | A more generous allowance, but excess gifts still count |
| Any time | Deprivation test | Gifts made to qualify for the subsidy can be fully counted |
Note for couples: These gifting limits are combined for both partners, not per person. A couple can gift a maximum of $8,000/$27,000 per year between them.
Example: How it works in practice
Scenario
Margaret has $50,000 in the bank. Ten years ago she transferred her $800,000 house to her family trust, gifting the debt over several years.
Assessment
Work and Income will look at the gifting pattern. Amounts over $27,000/year (for gifts made more than 5 years ago) are added back. The actual result depends on the specific gifting history.
The deprivation test.
Even if your gifting technically meets the thresholds, there's another hurdle.
If you gave away assets to qualify for the subsidy...
Work and Income can treat those assets as if you still own them. This applies regardless of when the gift was made. The question isn't just when you gifted, but why.
The test asks:
"Did the person deprive themselves of income or assets in order to qualify for a benefit, or increase the amount they could receive?"
If the answer is yes, those assets can be included in the assessment even if they were given away decades ago. Intent matters.
Likely to trigger deprivation
- - Transferring assets after receiving care needs assessment
- - Setting up trust specifically to "protect" assets from rest home costs
- - Large gifts made when rest home care is foreseeable
Less likely to trigger deprivation
- - Trusts established decades ago for genuine asset protection
- - Business succession planning with legitimate commercial reasons
- - Long history of gifts consistent with normal family giving
Trust income still counts.
Even if assets have been in a trust for many years and are genuinely no longer "yours", any income you receive from those assets is assessed.
If the trust pays you a distribution, lets you live rent-free in a property, or provides other benefits, these are considered when calculating your income for subsidy purposes.
Common example
If you transferred your home to a trust 20 years ago but continue living there rent-free, the "market rent" value may be treated as income when assessing your subsidy eligibility.
When one partner needs care.
The rules work differently when only one spouse or partner enters residential care.
Partner stays at home
- The family home is usually exempt if your partner lives there
- Asset threshold is $159,810 (excluding home/car) or $291,825 (including home/car)
- Assets held in joint names are usually assessed at 50%
Both partners in care
- The family home is no longer exempt and may need to be sold
- The $291,825 threshold applies to the couple
- Combined assets are assessed
Retirement village residents: If you move from a retirement village unit to the village's care facility, different considerations apply. Your Occupation Right Agreement terms become important.
Learn about retirement village care transfersWhat trusts actually can do.
Trusts serve many legitimate purposes. Rest home subsidy planning isn't one of them.
Legitimate reasons people use trusts:
Realistic options.
If you are concerned about rest home costs, here's what actually helps.
Plan early with legitimate purposes
If you have genuine reasons for a trust (protecting vulnerable family members, business succession), establish it when those reasons apply - not when you anticipate needing care. The longer the gap, the less likely deprivation applies.
Understand the true costs
Rest home care costs money regardless. Even with the subsidy, there are costs. Understanding what you'll actually pay helps with planning.
Get your EPAs in order
Having Enduring Powers of Attorney means people you trust can manage your affairs if you lose capacity. This often prevents the need for more expensive and intrusive court-ordered arrangements.
Consider your overall estate plan
Rest home costs are one consideration among many. A comprehensive estate plan addresses care, succession, family protection, and your wishes.
Key Takeaways
Trusts don't automatically protect assets from rest home assessments
Gifting thresholds mean recent gifts are added back to your assets
The deprivation test catches arrangements made to qualify for subsidies
Income from trust assets counts, even if the assets themselves don't
Trusts serve many legitimate purposes - rest home planning isn't one of them
Related Guide
Already have a trust? Review it to ensure it still serves your needs under current law.
Read the Understanding Your Trust GuideRelated Reading
Do I still need a trust in 2026?
Trusts have changed. Tax rates increased. Asset protection is harder. Here's how to evaluate whether a trust still makes sense.
What comprehensive estate planning includes
Estate planning is more than making a will. Comprehensive planning brings together wills, trusts, and EPAs into a coordinated plan that protects you and your family.