Why My Assets May Become Our Assets for Residential Care Subsidy Purposes

Key Takeaways

Many people assume that if an asset is owned by one spouse, protected by a contracting out agreement, or inherited as separate property, it will only be considered that person's asset for Residential Care Subsidy purposes.

In reality, the rules are very different. For Residential Care Subsidy assessments, MSD generally treats spouses and partners as an economic unit. This means assets owned by either spouse may be taken into account, regardless of how those assets are treated under relationship property law.

The Background

Residential Care Subsidies are designed to assist eligible people with the cost of long-term residential care. To determine eligibility, MSD undertakes a financial means assessment of an applicant's assets and income.

One of the most commonly misunderstood aspects of the regime is how MSD treats spouses and partners.

For Residential Care Subsidy purposes, a person may be considered to be in a relationship where there is an ongoing degree of companionship, mutual support and financial interdependence. Relevant factors can include shared finances, living arrangements, social activities and emotional support.

Importantly, the rules that apply under relationship property law do not necessarily apply in the Residential Care Subsidy context.

Why Contracting Out Agreements May Not Help

This often comes as a surprise to couples who have carefully structured their affairs.

A valid contracting out agreement may record that an inheritance remains separate property or that certain assets belong solely to one spouse. While those arrangements may be effective under the Property (Relationships) Act 1976, MSD generally takes a different approach when carrying out a Residential Care Subsidy means assessment.

For Residential Care Subsidy purposes, the asset definition includes assets owned by either spouse or partner that are capable of being realised. As a result, MSD does not generally distinguish between relationship property and separate property while the relationship continues.

In practical terms, assets that are "his" or "hers" for relationship property purposes can become "ours" for Residential Care Subsidy purposes.

Blended Families and Second Relationships

These rules can create particular difficulties in blended family situations.

This can mean family expectations, succession planning and Residential Care Subsidy rules do not always align.

A common example is where spouses have kept their finances largely separate throughout the relationship and have undertaken estate planning on the basis that their respective assets will ultimately pass to their own children. Despite this, MSD may still assess the couple as a single economic unit while the relationship continues.

The result can be that assets accumulated by one spouse over many years, and intended to benefit that spouse's children, are effectively taken into account when assessing the cost of care for the other spouse. In practical terms, one side of the family can find itself funding the residential care costs of a step-parent, despite the couple having maintained financial independence throughout their relationship and having carefully structured their affairs to keep assets separate.

This can come as a significant surprise where contracting out agreements, separate property arrangements and estate planning have created an expectation that particular assets have been ring-fenced for future generations. However, arrangements that are effective for relationship property and succession planning purposes do not necessarily produce the same outcome when Residential Care Subsidy rules are applied.

When can Assets Can Be Treated Separately?

If a relationship has genuinely ended, separate ownership arrangements and contracting out agreements may become relevant. However, it must be shown that the relationship has truly ended and not simply because the couple now live apart.

This can be particularly difficult where one spouse has lost capacity. A person who lacks capacity cannot independently end a relationship, meaning the couple may continue to be treated as an economic unit for Residential Care Subsidy purposes.

There is, however, an important exception. A property manager appointed under the Protection of Personal and Property Rights Act 1988 can enter into a Relationship Property Agreement on behalf of an incapacitated spouse. This may allow relationship property to be divided and each spouse's interest separately identified. MSD currently treats this as a lawful rearrangement of property, rather than deprivation, provided the division is fair and reflects the parties' interests.

Care is required, however. If the arrangement disproportionately favours the spouse remaining in the community, MSD may scrutinise the transaction and consider whether deprivation has occurred.

Why This Matters

Many families only discover these rules when a Residential Care Subsidy application is already underway.

For couples in second relationships, blended families, or situations where one spouse may require long-term care, it is important to understand that MSD may view assets very differently from the way they are treated under relationship property law or estate planning arrangements.

Understanding these issues early can help avoid surprises and ensure that contracting out agreements, trusts, wills and Residential Care Subsidy planning work together effectively.

Looking Ahead

As New Zealand's population ages, questions around care funding, asset ownership and relationship status are becoming increasingly important.

Residential Care Subsidy planning requires more than simply reviewing asset values. Relationship status and ownership structures can have a significant impact on eligibility.

The key takeaway is that, for Residential Care Subsidy purposes, MSD will often look beyond legal ownership and ask a much broader question: what resources are available to the couple as a whole?

Understanding that distinction can make a significant difference when planning for future care needs.