The rest-home subsidy myth — and the $563,664 mistake

From 1 July 2026, you can hold $300,811 in assets and still qualify for the residential care subsidy. Most people either overestimate that figure or assume a family trust settles the question. This post explains what the gifting rules actually allow, using a real example where following a lawyer’s advice put $563,664 at risk — and then turns to a second, unrelated piece of paperwork that costs families just as much: buying a home with your parents, your children or a friend without a property sharing agreement.

Key points

•    From 1 July 2026, the residential care subsidy asset thresholds are $300,811 and $164,731.

•    In the five years before you apply, allowable gifting is $8,500 a year per couple — not $27,000.

•    Growth in the value of Trust assets belongs to the Trust, and is safe from means testing.

•    A trust does not make assets invisible. Excess gifts are added back as if you still owned them.

•    A village unit counts as a home — unless the Trust lent you the price under a Deed of Loan.

•    Co-owning a home without a written agreement is the cheapest mistake to make and the dearest to fix.

Topic one — gifting, trusts and the residential care subsidy

The residential care subsidy is a Ministry of Social Development payment that meets the cost of long-term residential care once a person has been assessed as needing it and has passed a means assessment. The means assessment has two stages: an asset test, then an income test. Most of the anxiety, and most of the bad advice, sits in the asset test.

The thresholds, from 1 July 2026

•    Threshold A — $300,811. Applies if you are single, if both you and your partner are in long-term residential care, or if one of you is in care and you choose to include the family home and car in the assessment.

•    Threshold B — $164,731. Applies where one of a couple is in care and you choose to exclude the value of the family home and car.

The thresholds are reviewed every 1 July. Above them, you pay privately until your assets fall to the threshold, at which point you can apply. If you are over the threshold only because you own your home, a residential care loan may be available. ‍

The gifting rules — where the $27,000 figure misleads people

‍ Almost everyone we speak to has heard that you can gift $27,000 a year. That figure is real, but it applies to gifts made more than five years before you apply for the subsidy, and it is a combined figure for a couple, not $27,000 each.

In the five years immediately before an application, the allowable figure is much smaller. From 1 July 2026, it is $8,500 per couple per year, totalling $42,500 over the five-year period. Gifts above the limit are treated as deprivation of assets — the Ministry adds them back and assesses you as though you still owned them. ‍

What the Trust keeps

There is a point here that gets lost in the anxiety about gifting, and it is the reason trusts are worth having in the first place. Once an asset is genuinely in the Trust, any increase in its value belongs to the Trust, not to you. That growth is never gifted, so it does not enter a gifting calculation and is not counted against you in a residential care subsidy means assessment. A home settled on a trust twenty years ago and gifted off over time may have trebled in value since. The original debt is what was forgiven. The growth was the Trust’s from the day the asset went in.

That is why the sequence matters so much more than people expect. Assets moved into a trust early, and gifted down steadily, put the growth beyond means testing. Assets moved out again — for any reason, however sensible it may seem at the time — bring the full value back into your personal estate.

The one thing most people get wrong

A family trust does not make your assets disappear for subsidy purposes. Where assets were sold to a trust, and the debt back to you was forgiven by gifting, the Ministry looks at the gifting history. Anything above the allowable limits is added back to your personal assets.

Trusts still do a great deal of useful work — creditor protection, relationship property, succession, and keeping a family home out of an estate.

What that costs in real money

‍Bruce and Raewyn — not their real names — had fully gifted their home to their family trust. It was properly done, and long enough ago that the gifting sat well outside the five-year window. Their personal assets were, for means-testing purposes, effectively nil. The trust then sold the house. On their lawyer’s advice, the trustees distributed the $800,000 of sale proceeds to Bruce and Raewyn personally, so that they could buy a retirement village apartment in their own names.

That single step undid decades of planning. Money that had been safely held by the trust became money Bruce and Raewyn owned. The apartment they bought with it is treated, for subsidy purposes, as a home and is included in the asset assessment if one dies and the other goes into care, or both go into care. On the figures, $563,664 was placed at risk for care means-testing purposes — an amount that will be spent on care before any subsidy is payable. The advice was given in good faith. It was still wrong, and by the time it mattered it could not be undone.

The solution was simple

The funds should have been kept in the Trust, and lent by the Trust to Bruce and Raewyn under a Deed of Loan. The apartment would then have been bought in their names, with the purchase price owed back to the Trust.

In that way, the value of the apartment was offset by the loan, and their personal assets were still zero. The same apartment, the same money, the same village — and $563,664 still protected. The difference was one document.

‍‍The lesson is not that trusts fail. It is that the moment money leaves a trust is the moment to take advice, and that a retirement village purchase is exactly such a moment. If you are weighing a village purchase, read that alongside our post on why the retirement village reforms may not reach your occupation right agreement.

Where we can help

‍We review trusts we prepared and trusts prepared by other lawyers, and we check the gifting history against the current thresholds before anything moves. If your trust deed predates the Trusts Act 2019, it needs updating in any event: see reviewing your trust-based estate plan.

Topic two — buying a home with family or friends, without the agreement

‍Now to something entirely different, and non-trust: the property purchase that two or more people make together and then never document. Parents going onto a title with an adult child. Two siblings buying a rental. Three friends pooling deposits. It is common, it is sensible, and it is almost always done on a handshake plus a mortgage.

The problem is that the title records only how you hold the property — jointly or as tenants in common, and in what shares. It records nothing at all about who paid what, who pays the mortgage, what happens if one person wants out, what happens if one person cannot pay, or what happens if somebody dies, separates, or is made bankrupt. ‍

Sarah, Tom and the deposit nobody wrote down

‍Sarah and Tom bought a $950,000 house in 2023 with Sarah’s parents. The parents put in $300,000, and the couple borrowed the rest. Everybody agreed the parents would get their $300,000 back on a future sale. Nothing was written down, and the title showed all four as joint tenants.

In 2026 Sarah and Tom separated. Because they held as joint tenants, each of the four was presumed to own an equal quarter, and on a joint tenancy a deceased owner’s share passes automatically to the survivors rather than under their will. The parents’ $300,000 had become, on the face of the title, a quarter share worth whatever the house was worth — more than they put in, or less, depending on the market, but in either case not the $300,000 they thought they were getting back. Sorting it out took a lawyer, an accountant, and several months, and the legal costs alone exceeded what a property-sharing agreement would have cost by a wide margin.

A one-page understanding at the outset would have said: the parents’ contribution is a repayable loan of $300,000, secured by a second mortgage, repayable on sale or on twelve months’ notice; the property is held as tenants in common in stated shares; and no owner may sell without first offering their share to the others. That is not exotic drafting. It is ordinary conveyancing, done at the right time. ‍

What a property sharing agreement should cover

‍ •    Contributions. Who paid what, and whether each contribution is a share of ownership, a loan, or a gift.

•    Ownership shares. Tenants in common in stated shares, unless there is a real reason for a joint tenancy — and a clear note of what happens on death.

•    Outgoings. Who pays the mortgage, rates, insurance and maintenance, and what happens if one owner does not.

•    Exit. How an owner gets out, how the share is valued, and a first right of refusal for the others.

•    Life events. Death, separation, bankruptcy, loss of capacity, and a new partner moving in.

And check the tax position before you agree the structure

Changing shares in a property, or transferring a share between owners, can be a disposal. For residential property sold on or after 1 July 2024, the bright-line period is two years, with a main home exclusion and some rollover relief for certain transfers.

Ross Holmes Lawyers is not a tax or GST specialist. Tax outcomes on co-ownership, restructures and trust distributions depend on facts we do not assess. You must obtain specialist tax advice from your accountant or a tax adviser before acting. We work alongside your accountant on the legal documentation. ‍

Where we can help

‍We prepare property sharing agreements alongside the conveyancing, so the structure and the paperwork are decided together rather than years apart. If you are buying with family, ask for the agreement at the same time you ask for the fee quote. ‍

Questions clients actually ask us

Can I just gift the house to the kids now and apply later?

‍Not safely. Gifts above the allowable limits are added back to your assets if care is needed later. Gifting also creates other risks — the children’s relationships, their creditors, and their own bankruptcy — that have nothing to do with the subsidy.

Does the family home count?

It depends which threshold you choose. If one of a couple is in care and the other lives in the home, you can elect the lower threshold and exclude the home and car. If you are single, or if both of you are in care, the home is generally counted if you own it.

We put our house into a trust twenty years ago. Are we fine?

‍Probably better placed than most, but it is not automatic. The increase in the home's value is safe. The Ministry looks at the gifting history and also at the income the trust could pay you, even if it is not paying you. Have the gifting records located and checked while the people who remember them are still available.

My parents are helping with our deposit. Is that a gift or a loan?

That needs to be agreed in writing now. If you write nothing down, it will be argued about later, usually at the worst possible time. Record it, and record it in a form that survives a separation, a death and a bankruptcy. ‍

Do we really need an agreement if we all get on?

‍Agreements are not for people who fall out. They are for people who die, get sick, separate, lose a job, or move overseas — none of which requires anybody to behave badly.

Where to get information and support

‍•    Work and Income — Residential Care Subsidy — current thresholds and the application process. Residential Care Subsidy Unit: 0800 999 727.

•    Eldernet — financial means assessment — plain-language explanation of the asset and income tests.

•    Inland Revenue — the bright-line test — the current two-year rule and its exclusions.

•    Age Concern New Zealand — 0800 65 2 105 — independent support for older people and their families.

One change to watch

‍The asset thresholds and gifting limits are reviewed every 1 July, so the figures in this post have a twelve-month life. Watch also for any change in how retirement village occupation right agreements are treated in the means assessment, given the reform package now before Government.

Before you move money out of a trust, or onto a title with family, have the paperwork checked. Ross Holmes Lawyers reviews trusts we prepared and trusts prepared by others, checks gifting histories against the current thresholds, and prepares property sharing agreements alongside the conveyancing. Get a fixed-fee quote.

About the author

Ross Holmes is the principal of Ross Holmes Virtual Lawyers Limited and an author of the LexisNexis Law of Trusts (NZ). Ross Holmes Lawyers is a virtual law firm based in Auckland acting for clients throughout New Zealand across property and conveyancing, estate planning (trusts and wills), personal law, business law, seniors law and estates. More at rossholmeslawyers.com or get in touch.

This article is general information only and is not legal, tax or financial advice. Ross Holmes Lawyers is not a tax or GST specialist; please obtain specialist tax advice from your accountant before acting on anything in this article. Subsidy thresholds and gifting limits change annually and should be confirmed with Work and Income. Your situation is unique; please obtain specific advice before acting.