How Family Trusts Affect the Residential Care Subsidy
A great many New Zealanders set up a family trust in the 1990s and 2000s, and a great many were told, or came to believe, that it would protect the family home from rest home fees.
For some families it helps. For many it does far less than they expect, and for a few it makes things worse. If your parents have a trust and residential care is coming into view, this guide explains how Work and Income actually treats trusts, where families come unstuck, and what is worth doing now.
The belief, and why it is only partly true
The idea is simple enough. If the house is owned by a trust rather than by your parents, then your parents do not own it, so it should not count when Work and Income assesses whether they qualify for the Residential Care Subsidy.
Work and Income knows this. The means assessment does not stop at legal ownership. It looks at what was transferred, when, how, and whether the arrangement amounts to having deprived yourself of assets in order to qualify for government support.
Assets correctly settled into a trust a long time ago, with everything done properly, may well sit outside the assessment. That is the version that works. It is also the version that is becoming harder to achieve.
How the mechanism actually works
Understanding this makes everything else make sense.
When your parents transferred the house to their trust, they did not usually give it away outright. The trust bought it, but did not have the money to pay, so the trust owed them the purchase price as a debt. On paper, your parents swapped a house for an IOU of the same value.
That debt is an asset. It is money owed to them, and Work and Income counts it.
The way the debt disappears is that your parents forgive part of it each year. This is what people mean by “gifting”. Each year, a slice of the IOU is written off. Over time, if the gifting is done consistently and correctly, the debt shrinks toward zero and there is no longer an asset sitting in your parents’ names.
So the question is never really “is the house in a trust”. It is “how much of the debt has been forgiven, when, and was it within the allowable limits”.
The gifting limits
Work and Income allows a certain amount of gifting without treating it as deprivation of assets. The limits are different depending on when the gift was made.
For gifts made more than five years before the subsidy application, up to $27,000 a year is not counted. This figure is the total between a person and their partner, not each.
For gifts made within the five years before the application, the allowance is much smaller: up to $8,500 of gifted assets each year is not counted, to a total of $42,500 across the five years, combined between a person and their partner.
Anything gifted above these limits can be added back into your parents’ assets as though they still owned it.
These figures are current as at July 2026 and are confirmed on the Work and Income Residential Care Subsidy page. They are reviewed and can change, and many law firm and advice pages online still quote older figures such as $6,000 or $8,000. Check the current figures directly with Work and Income before acting.
One important nuance. These limits interact in ways that depend on your parents’ specific situation, particularly where gifting was made in recognition of care provided to them, which has its own combined limit. If your situation involves gifts made in return for care, or gifting that has already happened, confirm your exact position with Work and Income or a specialist before relying on these numbers. This guide explains the general rules; it cannot tell you how they apply to one family.
A trap that catches people repeatedly. Before gift duty was abolished in 2011, $27,000 a year was the amount you could gift without paying duty, and a lot of people set up regular gifting programmes around that number. The tax rule and the subsidy rule are not the same thing, and following the old gift duty figure in the five years before an application can produce exactly the outcome the family was trying to avoid.
Deprivation of assets
This is the concept that decides most difficult cases.
Deprivation is when someone has given away assets, or sold them for less than they were worth, in a way that reduces what they own for assessment purposes. When Work and Income decides deprivation has occurred, it treats the deprived amount as though your parent still owns it.
Two points families find surprising.
The five year window is not a safe harbour. It is common to hear that Work and Income only looks back five years. The five year period matters for the size of the allowance, but deprivation can be considered outside that window too. There are cases where gifting from decades earlier affected an application.
Intention is not the only test. Families sometimes assume that because the trust was set up for other reasons, such as protecting against business risk or a relationship property claim, the subsidy rules do not bite. The assessment looks at the effect of what happened, not only the reason for it.
Why trusts work less well than they used to
The gifting limits have not kept pace with house prices, and the arithmetic has quietly broken.
Consider a home worth a million dollars transferred to a trust. At $27,000 a year, forgiving the resulting debt would take roughly 37 years. Most people do not start 37 years before they need care.
The practical result is that many trusts hold a house while the parents still hold a large unforgiven debt owed back to them by the trust, and that debt counts as an asset. The family believes the house is protected. The assessment sees a substantial asset in the parents’ names.
If your parents have a trust, the most useful thing you can find out is not whether the house is in it. It is how much of the debt has actually been forgiven.
Income from trust assets is assessed too
Even where assets sit outside the assessment, income can still be counted.
If the trust earns income and your parents receive it, or could receive it, that income forms part of the income side of the means assessment. Distributions from a trust are treated as income in the same way as interest or a pension.
There is also a subtlety around income earning assets. Gifting an income earning asset to a trust can create problems that gifting a non income earning asset does not. This is one of several reasons that generic advice is risky here.
The trust has to have been run properly
A trust that exists on paper but was never administered as a trust is vulnerable.
Signs that a trust may not stand up to scrutiny include no trustee meetings or minutes, no records of the gifting programme, the settlors treating trust assets as their own money, and documentation that was never completed after the initial set up.
If nobody has looked at the trust deed or the gifting record in fifteen years, that review is worth doing before an application, not after.
Work and Income can ask the trust to contribute
Where deprivation has occurred, there is an expectation that the trust will help with care costs. Work and Income can ask the applicant to request financial support from the trustees.
This can put a family in an awkward position, particularly where the trustees are adult children who see the trust as their inheritance. It is better to understand this possibility in advance than to meet it in the middle of an application.
What to do if your parents already have a trust
Find the paperwork. The trust deed, the gifting records, the memorandum of wishes, and any solicitor’s file. You are looking for evidence of what was transferred, when, and how much has been forgiven.
Work out the outstanding debt. This single number tells you more about the subsidy position than anything else.
Get it reviewed before you apply. A specialist can tell you where the family actually stands, what can still be done, and what cannot. Applying first and asking questions later removes options.
Do not start gifting large amounts now. Gifting in the five years before an application is heavily restricted, and a late flurry of gifting is precisely what the deprivation rules exist to catch. It can make the position worse.
What to do if you are thinking about setting one up
If residential care is already on the horizon, a trust is unlikely to be the answer. The timeframes required simply do not work at that point, and the transfer itself may be treated as deprivation.
Trusts are still set up for good reasons, but doing it specifically to qualify for the subsidy, late in the day, rarely achieves what people hope for.
Getting advice
This is one of the few areas of aged care planning where paying for specialist advice usually pays for itself. The rules interact in ways that general advice does not cover, the amounts involved are large, and mistakes tend to be irreversible.
Two kinds of professional matter here, and families often need both.
Lawyers handle the trust deed, the gifting record, the legal review, and the subsidy application where a trust is involved. Several New Zealand firms specialise in exactly this. See our legal help listings.
Financial advisers who specialise in aged care funding can model the means assessment position and advise on how assets and income are structured. See our financial advice listings.
If you are unsure which you need first, a lawyer is usually the right starting point where a trust already exists, because the trust documentation determines almost everything else.
Frequently asked questions
Does putting the house in a family trust protect it from rest home fees?
Not automatically. Work and Income looks beyond legal ownership at what was transferred, when, and whether gifting stayed within allowable limits. Assets settled into a trust long ago with a completed gifting programme may sit outside the assessment. A recent transfer, or a large unforgiven debt owed back by the trust, generally does not.
How much can you gift without affecting the Residential Care Subsidy?
For gifts made more than five years before applying, up to $27,000 a year is not counted, and that is the total between a person and their partner. For gifts made within the five years before applying, up to $8,500 a year is not counted, to a total of $42,500 over the five years combined between a person and their partner. These figures are set by Work and Income and are frequently misquoted online, so confirm current amounts with Work and Income.
Can Work and Income look back more than five years?
Yes. The five year period determines which gifting allowance applies, but deprivation of assets can be considered outside that window.
What is deprivation of assets?
Giving away assets, or selling them for less than they are worth, in a way that reduces what you own for means assessment purposes. Where Work and Income finds deprivation, it assesses the person as though they still owned the deprived amount.
Our parents set up a trust years ago and never did anything with it. Does that matter?
It may. A trust that was never properly administered, with no gifting records and no trustee decisions, is more vulnerable to scrutiny than one that was maintained. Have it reviewed before an application rather than after.
Will the trust have to pay for our parent’s care?
Where deprivation has occurred, there is an expectation that the trust will contribute, and Work and Income can ask the applicant to seek support from the trustees.