Gifting and Inheritance: What NZ Retirees Should Know

Picture this: You gift $100,000 to your daughter to help with her first home purchase. Five years later, you need residential care and apply for the Residential Care Subsidy. Work and Income treats that gift as if you still own it when calculating your eligibility. This scenario plays out more often than most New Zealanders realise.

The intersection of gifting, inheritance planning, and residential care subsidy rules creates a complex landscape that requires careful navigation. Many well-intentioned gifts can inadvertently affect your ability to access government support when you need it most, while poor estate planning can create family conflict that lasts generations.

New Zealand abolished gift duty in 2011 and has never had an inheritance tax or estate duty. This makes the country unusually generous from a tax perspective compared to many other developed nations.

However, the absence of gift tax doesn't mean gifting is consequence-free. The primary concern for most retirees centres on the asset testing rules that determine eligibility for the Residential Care Subsidy.

Under current Work and Income rules, any gifts made within the five years before applying for the subsidy are treated as deprivation of assets. This means they're added back to your asset total when calculating whether you meet the asset threshold. As of 2024, the asset threshold is $239,930 (including your house if your partner isn't living in it), with regular adjustments for inflation.

The five-year lookback period is significant. Many retirees assume that once a few years have passed, a gift is forgotten. In practice, Work and Income carefully reviews your financial history, and a substantial gift made four years and eleven months ago will be fully counted against you.

The care subsidy rules create a genuine dilemma for retirees who want to help their children while also protecting themselves. Consider the common scenarios:

• Helping with home deposits: A $150,000 gift to help your son buy his first home seems reasonable when you have $600,000 in assets. But if you need residential care three years later, that gift is added back, potentially pushing you over the asset threshold and delaying subsidy eligibility.
• Equalising inheritances early: You give $200,000 to one child to balance out the family bach you've already transferred to another. If care needs arise within five years, both transactions are scrutinised.
• Regular smaller gifts: Annual gifts of $20,000 to each of three children add up quickly. Over four years, that's $240,000 in total gifting that could affect subsidy eligibility.

The financial impact can be substantial. Residential care costs in New Zealand typically range from $60,000 to over $100,000 per year depending on location and level of care. If gifting delays your subsidy eligibility by even one year, you're potentially drawing down an additional $80,000 from your remaining assets.

Many New Zealanders established family trusts years ago with the idea that transferring assets into trust would protect them from means testing. The reality is more nuanced.

Work and Income applies similar deprivation rules to trust settlements. If you transfer your home or other significant assets into a family trust, that transfer is treated as gifting for Residential Care Subsidy purposes. The five-year lookback period applies.

Additionally, if you continue to benefit from trust assets (living in a trust-owned home, receiving distributions), those benefits may be assessed as income or deemed assets. The rules are complex and depend on factors like:

• When the trust was settled and assets transferred
• Whether you're a beneficiary or settlor
• What control you retain over trust assets
• Whether you receive any benefit from the trust

Some older trusts established well before any care needs arose may provide some protection, but trusts created as a late-stage care planning strategy are unlikely to be effective and may create additional legal and accounting costs without the anticipated benefits.

One of the most sensitive aspects of estate planning involves determining what "fair" means for your specific family situation. Equal distribution (splitting everything evenly) is common, but not always appropriate.

Factors that might influence a decision to distribute unequally include:

• Prior gifts or support: If you've already helped one child significantly (paid for education, provided a house deposit, supported them through illness), you might choose to balance this in your will
• Different needs: A child with a disability or chronic health condition may have greater long-term financial needs than their siblings
• Contributions to your care: When one family member has provided substantial unpaid caregiving, some families recognise this through inheritance
• Relationship property considerations: Inherited assets are generally separate property in New Zealand, but gifts made during your lifetime may be treated differently under relationship property law

The critical element isn't necessarily equal treatment, but rather clear communication and documentation. Unexplained unequal distributions are a common source of family conflict and will disputes. If you have sound reasons for unequal distribution, documenting these reasons and discussing them with your family (where appropriate) can prevent lasting rifts.

Given the care subsidy implications, what options do retirees have for helping their families while protecting their own interests?

1. Early gifting with care planning in mind

If you're in your early 60s, healthy, and statistically unlikely to need residential care for 15-20 years, making gifts now creates a substantial buffer beyond the five-year lookback period. This approach carries risk, however. You're depleting your assets based on an assumption about your future health that may not hold true.

2. Loans instead of gifts

Some families structure financial help as loans rather than gifts. This preserves the asset on your balance sheet for means testing purposes. The loan can be forgiven in your will if appropriate. However, this approach requires proper documentation, and there are tax implications if you don't charge interest at market rates on substantial loans to family members.

3. Gifts with strings attached

Rather than outright gifts, you might consider arrangements where you retain some benefit or control. For example, helping a child buy a home where you have a life interest or right to reside. These arrangements can be complex and require legal advice to structure properly, as they may still be treated as partial gifting.

4. Spending on experiences together

Instead of transferring wealth, some retirees focus on spending money on shared family experiences: holidays together, paying for family gatherings, creating memories. These expenditures aren't gifts in the asset-testing sense and can provide meaningful family connection.

5. Transparent budgeting for care contingency

Before making any substantial gifts, calculate your potential care costs and ensure you're retaining sufficient assets to fund several years of care if needed. This might mean limiting gifts to amounts you can genuinely afford to give away without compromising your security.

Proper documentation is the foundation of effective estate planning. Every New Zealand retiree needs these core documents:

A current will is non-negotiable. Dying intestate (without a will) means your estate is distributed according to the Administration Act 1969 formula, which may not reflect your wishes. Your will should be reviewed every few years and updated after major life events (marriage, divorce, birth of grandchildren, significant asset changes).

Enduring Power of Attorney (EPA) for property allows someone you trust to manage your financial affairs if you lose mental capacity. Without this, your family may need to apply to the Family Court for property management orders, which is time-consuming and expensive. More guidance on this is available in our estate planning basics article.

Enduring Power of Attorney for personal care and welfare covers health and lifestyle decisions. This is separate from the property EPA and becomes active only when you're mentally incapable of making your own welfare decisions.

Advance care plan or living will (optional but valuable) documents your wishes about medical treatment in various scenarios. While not legally binding in the same way as an EPA, it provides crucial guidance to your family and healthcare providers.

All these documents need to be properly witnessed and stored where your family can access them when needed. Simply having them in a safe deposit box that no one else can access defeats their purpose.

One of the most overlooked aspects of estate planning is communication. Many disputes arise not from the decisions themselves, but from surprise and lack of understanding.

Some families find it helpful to have a family meeting to discuss general estate plans. You don't need to disclose exact amounts or every detail, but explaining your reasoning ("I've already helped Sarah with her house deposit, so I'm balancing that in my will" or "I'm keeping most of my assets available because I may need expensive care later") can prevent misunderstanding.

For more complex situations, particularly blended families, a letter of wishes attached to your will can explain your reasoning without creating legal obligations. This isn't a legal document, but it provides context for your executor and beneficiaries. Our article on blended families and retirement explores these dynamics in greater depth.

If you anticipate conflict or have made decisions that might be questioned, consider discussing your plans with a lawyer who specialises in estate planning. They can advise on how to structure your will to minimise the risk of successful challenges.

Your KiwiSaver balance doesn't automatically form part of your estate. When you die, your KiwiSaver funds are paid according to the nomination of beneficiaries you've made with your provider, or if you haven't made a nomination, according to the provider's trust deed (typically to your estate).

It's worth reviewing your KiwiSaver beneficiary nomination every few years, particularly after relationship changes. Some providers allow you to nominate specific beneficiaries and allocate percentages; others pay to your estate by default. You can learn more about this in our article on what happens to KiwiSaver when your partner dies.

KiwiSaver funds paid to beneficiaries aren't subject to tax (New Zealand has no death duties), though any investment earnings between the date of death and distribution are taxed as normal.

Several persistent myths about gifting and inheritance planning deserve correction:

Myth: "There's no tax, so there are no rules."
While New Zealand has no gift or inheritance tax, there are still significant rules around deprivation of assets for care subsidies, relationship property law, and proper estate administration.

Myth: "A family trust protects all my assets from care costs."
Trusts settled within five years of applying for the Residential Care Subsidy are treated as deprivation. Older trusts may provide some protection, but the rules are complex and depend on your specific circumstances.

Myth: "My will overrides everything."
Some assets pass outside your will (KiwiSaver with nominated beneficiaries, jointly owned property with right of survivorship, trust assets). Your will only controls assets you personally own at death.

Myth: "Equal means fair."
Equal distribution is one approach, but fair treatment might look different depending on your family circumstances. What matters is that your decisions are thoughtful and, where possible, explained.

Myth: "I can just tell my kids what I want, I don't need it in writing."
Verbal wishes have no legal standing. Without proper documentation, your estate will be distributed according to the default legal rules or your outdated will, not your current intentions.

This article is general information only and does not constitute personalised financial advice. Estate planning and gifting decisions depend on your specific circumstances and family situation. For advice tailored to your needs, speak with a lawyer who specialises in estate planning or a licensed Financial Advice Provider. You can find a registered adviser at fma.govt.nz.