Dementia risk: Do family trusts really protect your assets if you need expensive care?

Monday, 2 February 2026

How can a couple protect their assets in the event that husband or wife needs to go into a rest home or dementia ward?

Retirement questions Answered: from time to time, we will pick a question sent in by a reader and offer a response from contributor Gill South. You can read more here and submit questions below.

I remember when I first began writing about personal finance in New Zealand in 2004, family trusts were all the rage. Everyone was putting the family home into them and other valuables, in essence, ring-fencing their assets.

We had a question from a reader I’m going to call Abby* who was keen to know how trusts work to protect assets when or if, either she or her husband, (shall we go with Marcus), need to move into a rest home in the future when their health starts to fail.

I am in my late 50s, married with three young adult (two working and one studying) children. I work full-time and my husband does relief teaching work. We are mortgage-free in our family home and own another house with a $400,000 mortgage that we rent out.

We hope to sell our family home in the next two years and move into our other property. We will use the money to pay off the $400,000 mortgage with the remainder going into our retirement savings.

My question is: how do we protect our assets in the event that one of us needs to go into a rest home or dementia ward. I hear that family trusts do not afford protection from having to pay for such care and that a person can only retain around $290,000 in assets.

Anthony Lipscombe, asset planning and tax director at Gilligan Rowe & Associates (GRA) is an expert on the rest home trust issue, so I ran Abby and Marcus’s question by him.

Family homes are often placed into trusts as part of long-term planning, but the rules around rest home care and asset testing can be more complex than many realise.

Lipscombe turned out to be a very self-aware type who said he knew this was quite a “dry subject” – would he be a favourite person to sit next to at a dinner party? Probably not, but that would be your loss.

Family trusts are useful for a variety of different purposes including protecting assets from personal and business risk, for passing on inheritances, and for separating assets in blended families, he tells me.

Lipscombe says he doesn’t come across clients who have formed their trust to help them to be eligible for residential care subsidy very often, but having a trust for the transfer of assets can in some cases put you in a position where you are more likely to qualify for a residential care subsidy.

As you’d expect, there is a needs assessment process and if it is decided that long-term residential care is necessary for a loved one, then you are liable for the cost of that care.

If you are eligible, there is a residential care subsidy, explains Lipscombe.

Asset thresholds and gifting limits can determine whether someone qualifies for government help with rest home care, regardless of whether their home sits in a trust.

The good news is the Government will support those who don’t have the wherewithal to pay for the care.

And in order to prove that you need government help, the collective assets of both partners must be below $291,825 to be eligible for the subsidy.

There is also an alternative asset test which is used when one spouse needs residential care while the other remains living in their own home – and in this case, there is a lower asset limit of $159,810 and the value of the owner-occupied home and a vehicle, are excluded.

These numbers, by the way, increase in line with inflation.

Ok, so the beauty of trust assets is that these are not seen by the Government as part of one’s “personal asset base” so they don’t count when it comes to the needs assessment. And that means you have a better chance of making that relatively low threshold for getting the government subsidy.

But the catch is, and this may make your head hurt – that the needs assessment does take into account gifting above certain thresholds. This is because it stops people from depriving themselves of assets as they get close to applying for that subsidy, explains Lipscombe.

You can gift up to $8000 every year over a five-year period to your trust immediately prior to the subsidy application, no problem, and before that, it can be up to $27,000 for a couple.

So in the case of Abby and Marcus, they could transfer their future home and investments into trust ownership via a sale. Your trust has to, in effect, buy the house.

Assets that have been sold at a fair market value won’t be treated as part of their asset base as far as the asset test is concerned.

But the trust would need to pay for the acquisition of those assets, and it would need to acknowledge a debt back to Abbey and Marcus.

And that debt owed to Abbey and Marcus, would be regarded as an asset that would count towards that $291,825 or $159,810 threshold. This is quite a bit of information, so accept this as an opportunity to take a quick breather.

Lipscombe says you could reduce that debt/asset through the gifting programme of either $8000 a year, or $27,000 a year, depending on how far away the possibility of going into a care home is.

If you can visualise sitting down, calculating the size of your asset base and the likely number of years before one or both of you are going to need care, then good on you. Sounds too organised for me.

But you could say, (if you are in your 60s, for instance) the sooner you transfer assets to a trust and start gifting, the more likely you’ll end up with an asset base that meets or falls below the subsidy threshold, explains Lipscombe.

And just when you thought you’d got all this, he cautions, actually, it may work out better that you don’t transfer your main home to trust ownership if you end up being in the situation where only one partner needs care years before the other one. If you keep ownership of the home personally, the home (and the car remember) will be excluded with the alternative asset test limit of $159,810. Sod’s law, we’ll probably both go downhill at the same time.

Nearly there, last point. Lipscombe explains that even if Abby and Marcus satisfy the asset test, they can’t totally relax. Qualifying for the subsidy because they meet the threshold for the asset test doesn’t mean the care is going to be fully funded. Their available income will still be applied towards the cost of care. And the rules are complex as to what is seen as “available income,” says our expert.

That feels like a topic for another day, but I hope that helps Abby and Marcus, and thanks for bringing this up. If you have any further questions about trusts, please pop them in the form below.

*Disclaimer: The information in this article is of a general nature and is not intended to be personalised financial advice. The names of the individuals in this story have been changed to protect their privacy.

If you have a question you’d like answered, drop it in the document below. The more detail you provide (please don’t include personal banking information), the more likely it is that we’ll look into answering it.

Gill South is a freelance business writer who has authored a book on personal finance and written for many major publications in New Zealand.