Residential care planning should not be left until a person is about to enter care. By then, MSD will be looking back at what has already happened. The better approach is early, genuine and well-documented estate planning.
Two of the main planning tools families ask about are tenants in common ownership and family trusts. Both can be useful. Neither should be treated as a guaranteed way to avoid care costs.
Many couples own their home as joint tenants. The key feature of joint tenancy is survivorship. When one owner dies, their interest passes automatically to the surviving owner. It does not pass under the deceased person’s Will.
Tenants in common is different. Each owner has a defined share, often 50/50. When one owner dies, their share forms part of their estate and passes under their Will.
This can matter for residential care planning. Under a joint tenancy, the first death may result in the survivor owning the whole home personally. If the survivor later enters care and no spouse, partner or dependent child remains living in the home, the whole home may be relevant in their asset assessment.
Tenants in common ownership can avoid that automatic result. For example, one spouse’s 50% share might pass under their will to children or to a testamentary trust, while the surviving spouse has a right to occupy the home under a ‘Life interest’. The survivor is protected, but the first spouse’s share does not necessarily become the survivor’s personal asset outright.
This is not a magic solution. If one spouse enters care while the other remains living in the home, the family home may already be excluded if the lower threshold is used. If the home is included, MSD may consider the assets of both partners, subject to the applicable rules. Tenants in common ownership is best understood as an estate planning tool, not a guaranteed subsidy strategy.
Any change to tenants in common should be paired with updated Wills. The Wills should say what happens to each person’s share of the home. They may include a life interest, a right to occupy, a gift to children, a testamentary trust, or rules about sale, replacement property, rates, insurance and repairs.
Trusts are another common tool. Historically, some people established family trusts partly because of Residential Care Subsidy planning. The idea was that if assets were transferred to a trust early enough, the person would not personally own them when later assessed.
That needs careful handling. Work and Income may ask for more information if the applicant or their partner has transferred assets to a trust, or has been a settlor, trustee or beneficiary of a trust or estate. Loans to family trusts can also be assets. If a house is transferred to a trust but the trust owes a debt back to the person, that debt itself will likely be treated as an asset.
Gifting is also important. Gift duty was abolished from 1 October 2011, but MSD still applies gifting rules for Residential Care Subsidy purposes. For gifts made in the five years before applying, Work and Income generally will not count up to $8,000 per year, being $40,000 total for the person and partner combined over five years. If both partners apply at the same time, this may double to $80,000. For gifts made more than five years before application, Work and Income generally will not count up to $27,000 per year for the person and partner combined.
MSD also has deprivation rules. If MSD is satisfied that a person, or their spouse or partner, has directly or indirectly deprived themselves of income or property, MSD may assess them as if that deprivation had not occurred. This is why last-minute transfers, large gifts or rushed debt forgiveness can be risky, and usually don’t work.
The best estate planning is early, genuine and consistent with the family’s wider intentions. It may include updated Wills, Enduring Powers of Attorney, tenants in common ownership, life interests, rights to occupy, testamentary trusts, properly administered family trusts and clear records.
The key message is simple: residential care planning is estate planning. Families should understand how assets are owned, what happens on death or incapacity, and how past decisions may affect future subsidy eligibility.
This article provides general information only and is not legal advice. Families should obtain advice specific to their circumstances.
