Residential Care Subsidy and Trusts: What Really Counts in 2025

For many families, the Residential Care Subsidy (RCS) is one of those topics that only surfaces when it’s urgent — usually when a loved one is moving into aged residential care. Suddenly the question becomes: will we qualify for government help, or will we have to meet the full cost ourselves?

It’s a fair question. The cost of long-term residential care can easily exceed $70,000 per year. A subsidy can make an enormous difference to family finances. But the rules are complex, the numbers shift annually, and there are plenty of myths about what helps and what doesn’t.

Let’s walk through the current rules, the important cases that shaped them, and where trusts still have a role to play.

The Two-Step Means Test

To qualify for RCS you must pass two tests:

  1. The Asset Test – looking at what you and your partner own.

  2. The Income Test – looking at what you and your partner earn.

Both tests apply if you’re married, in a civil union, or in a de facto relationship. In other words: couples are treated as an economic unit.

Step 1: The Asset Test (Current Thresholds)

As at 1 July 2025, the Ministry of Social Development (MSD) applies these thresholds:

  • Single, or a couple both in care: assets must be $291,825 or less.

  • Couple where one partner remains at home:

    • Either choose the $159,810 threshold (excluding the home and car), or

    • The $291,825 threshold (including the home and car).

“Assets” means more than just bank accounts. It includes investments, additional properties, boats, caravans, shares, and yes — in some cases — assets that relate to trusts.

Step 2: The Income Test

If you pass the asset test, MSD then looks at your income.

That means almost everything:

  • NZ Superannuation

  • Investment returns (interest, dividends, rental income)

  • Trust distributions (if you’re a beneficiary and the trustees pay you, or income is deemed available to you)

There are some income exemptions. MSD allows a small amount of “income-from-assets” to be disregarded:

  • $1,267 per year if you’re single

  • $2,534 per year if you’re a couple both in care

  • $3,801 per year if one partner is in care and one at home

These figures are small in the scheme of things, but they can tip the balance for borderline cases.

Gifting Rules: Where Many People Get Caught

One of the most misunderstood areas is gifting. Families often assume that if you’ve put assets into a trust, they’re “safe” from the subsidy assessment. The reality is more complicated.

Here’s what MSD allows:

  • In the last 5 years before you apply: up to $8,000 per year total between you and your partner. Not $8,000 each — $8,000 combined.

  • More than 5 years ago: up to $27,000 per year total between you and your partner. Again, not per person — per couple.

Any gifting above those limits is treated as if you still owned the asset. That’s the case even if you forgave loans to a trust years earlier.

This was clarified by the Court of Appeal in B v Chief Executive of MSD [2013] NZCA 410. The Court confirmed that the gifting allowance applies to the couple as one economic unit, not as two individuals. That ruling closed off the argument that each partner had their own $27,000 cap.

Broadbent: No “Notional Income” From Trusts

Another important case is Chief Executive of MSD v Broadbent [2019] NZCA 201.

Before Broadbent, MSD sometimes tried to argue that if you had gifted capital into a trust, they could still count a kind of “notional income” — interest you could have earned had you not gifted it away.

The Court of Appeal said no. If the capital was gifted within the permitted limits, MSD can’t then add back a fictional return on it. That would be double-counting.

However, the Court also made clear that foregone interest on loans may be treated as deprived income — but only if that income was actually available to you under the terms of the loan.

After Broadbent, MSD updated its policies. They no longer impute “nominal” trust income on valid gifts, but they still scrutinise transactions closely.

Do Trusts Still Have a Place?

Yes — but with caveats.

When I first started practice more than 20 years ago, it was common to see trusts set up specifically to protect against residential care costs. Many people were told, “just put it in a trust and you’ll be fine.”

The law has changed. Courts, MSD, and Parliament have all narrowed the scope for “trust sheltering.”

Today:

  • A trust won’t automatically put assets beyond MSD’s reach.

  • If you’ve gifted within the allowed limits, those gifts are respected.

  • If you’ve over-gifted, MSD can count the excess back in.

  • If you’ve transferred property for less than fair value, MSD can treat the difference as deprivation.

  • And if trustees distribute income to you, or income is clearly available to you, it’s counted.

That said, trusts still have a role. They can:

  • Provide protection for family assets from other risks (creditors, relationship property disputes, succession claims).

  • Manage long-term planning for family members with differing needs.

  • Still play a part in residential care planning if they are carefully structured, properly administered, and transactions stay within MSD’s thresholds.

Couples as an Economic Unit

The theme that runs through all this is that MSD treats couples as one financial unit.

  • Assets are counted jointly.

  • Income is assessed jointly.

  • Gifting limits apply jointly.

It doesn’t matter that you may have a relationship property agreement saying “what’s mine is mine and what’s yours is yours.” For subsidy purposes, the law doesn’t accept that separation.

Why Planning Matters

The RCS is a means-tested benefit. It’s designed for people who genuinely need support. MSD applies the rules strictly.

But with careful, early planning you can:

  • Stay within the gifting limits

  • Keep records to show your trust is properly run

  • Avoid transactions that MSD might treat as deprivation

  • Understand whether your current asset and income mix will qualify you — or whether you need to adjust expectations

It doesn’t require a huge investment to find out. A targeted review of your assets, trust deeds, and gifting history against MSD’s current thresholds can usually be done at a modest fixed fee.

Final Thoughts

The Residential Care Subsidy rules are technical, and the numbers move every 1 July. The important Court of Appeal cases — B v MSD [2013] and Broadbent [2019] — have settled key principles:

  • Gifting allowances are per couple (not per person).

  • MSD can’t invent notional income on valid gifts.

But they also show that trusts are not a blanket solution. They still have value, but only if they’re used properly and maintained carefully.

If you want clarity — whether for yourself, your parents, or your partner — the best step is a Residential Care Subsidy Eligibility Review. With a relatively small investment, you can know exactly where you stand, based on today’s MSD thresholds and your actual trust and gifting records.

Because when the time comes, the last thing you want is a nasty surprise.

References

  • Ministry of Social Development – Residential Care Subsidy eligibility and gifting rules (latest thresholds and tests).

  • B v Chief Executive of the Ministry of Social Development [2013] NZCA 410 – gifting limits apply per couple.

  • Chief Executive of MSD v Broadbent [2019] NZCA 201 – no “notional income” from capital gifted within rules.

  • MSD Cabinet Paper (2021) – implementing Court of Appeal judgment on means assessment.

Posted 30 days ago