It is important to consider the different types of ownership when purchasing a property with another party

Joint tenants

A majority of couples own their properties as Joint Tenants. The significant feature of this form of ownership is that when one person passes away, their share will automatically pass to the other party through "survivorship". For example, if the husband passes away, his share will automatically pass to his wife who will then have full ownership of the property. If you are a joint tenant you cannot formally leave your interest in the property in your Will, as the joint tenancy overrides any provision in a Will. It is a ‘survivor takes all’ scenario. As the property does not form part of your estate, then you may not require Probate of your Will if your other assets are worth less than $15,000, which can be a saving to your estate.

Tenants in common

The second common form of legal ownership where two (or more) people own property together is as tenants in common.
Quite simply, this form of ownership allows for property to be owned in distinct shares. The most common form is tenancy in common in equal shares though properties can be owned in unequal, defined shares. Significantly, the rule of survivorship does not apply and as a consequence what happens to your share of the property on your death depends entirely on what you state in your Will. It is therefore important that your Will is updated to deal with your interest in the property.

Life Interest Will for tenants in common

If property is owned by two or more persons as tenants in common, they are free to leave their share of the property as they choose in their Will. Quite often a couple will leave a "Life Interest" in their share of the property to their spouse in their Will. A Life Interest allows your spouse to live in your share of the property for the remainder of his or her lifetime (and move if needed) but upon the ultimate death of the survivor, your share of the property then goes to the final or residuary beneficiaries of your Will e.g. your children. This arrangement is very useful for people in a second relationship with children from a previous relationship as they can ensure their partner has somewhere to live, while protecting their assets for their children.

Residential Care Subsidies

In the past, trusts were often used to enable people to qualify for residential care subsidies. It is, however, becoming more difficult to place yourself in a position of being entitled to a residential care subsidy through gifting your assets into a trust. While gift duty was abolished on 1 October 2011, the Ministry of Social Development's (Ministry) residential care policy remains unchanged and there are limits to gifting. Your gifts may still be clawed back and added to your total assets in a financial means assessment. Long established trusts may still provide protection but an in-depth discussion would be required if you wished to set up a new trust for this purpose.

Life interests created through Wills can often be an effective means of enabling the surviving spouse to obtain a residential care subsidy through having only half of what were the joint assets taken into account in the residential care subsidy application, though the Ministry would still request any income generated from the deceased’s party’s share be put towards the surviving party’s care costs.

As discussed above, if property is owned as joint tenants, on the death of the first spouse, the whole property passes to the survivor. Should the surviving spouse require either rest home or hospital level care at a later date, they will have to meet the Ministry’s criteria before qualifying for a Residential Care Subsidy and the whole value of the Property will be taken into account.

Because of this, many people today are choosing to become Tenants in Common as the surviving spouse will only own a half share of the property. Therefore, should the surviving spouse ever require government assistance, they need only include the value of their own share of the property as they enjoy only a life interest in their deceased spouse’s share of that asset.

Timing will be critical as there are strong anti-deprivation clauses in the Social Security Act 2018. Any decision to change the way you own your home must be done in conjunction with the rules and regulations set in place by the Ministry, which continue to get stricter over time.

As the rules continue to change, and each application is assessed on a case by case basis, a residential care subsidy can never be guaranteed.