Family Trusts in New Zealand: What You Need to Know

How Does a Family Trust Work in NZ?

A family trust is a legal arrangement where assets are transferred to trustees to manage on behalf of beneficiaries. In New Zealand, trusts are commonly used to:

• Protect family assets from business risks or relationship property claims
• Support children and grandchildren financially
• Plan for succession and minimise estate complications

A trust involves three main parties:

• Settlor(s): the person(s) who establish the trust and contribute assets
• Trustees: those appointed to manage the trust’s assets
• Beneficiaries: those who will ultimately benefit from the trust

Family Trust Tax Rates NZ

Since 1 April 2024, family trusts are taxed at a flat rate of 39% on income exceeding $10,000 (after deductible expenses) that is retained within the trust. This rate aligns with the top personal income tax bracket, reducing previous tax advantages where trusts were used to shelter income. Trustee income below the $10,000 threshold will continue to be taxed at 33%.

However, income distributed to beneficiaries may be taxed at the beneficiaries’ personal tax rate – which can be lower. Trustees need to carefully consider distributions to manage tax efficiently.

Family Trust Tax Benefits

While tax advantages have narrowed, family trusts still offer important financial benefits:

• Income splitting (where appropriate and legal)
• Asset protection from creditors or personal claims
• Succession planning to retain control over how and when beneficiaries inherit

Trusts can also help preserve wealth across generations, particularly in blended families or where asset protection is a concern.

Family Trust Gifting

Since the abolition of gift duty in New Zealand in 2011, it’s easier to transfer assets into a trust. However, care must be taken to:

• Record gifting correctly
• Understand the implications on rest home subsidies, relationship property, and IRD scrutiny
• Consider staged gifting if debts to the settlor remain (such as forgiveness of loans over time)

Disadvantages of a Family Trust in NZ

While family trusts offer flexibility and asset protection, they’re not suitable for everyone. Consider these potential downsides:

• Compliance obligations under the Trusts Act 2019
• Administrative costs, including annual reviews and professional fees
• Loss of control over assets, especially if independent trustees are used
• Disclosure obligations to beneficiaries

Dissolving a Family Trust in NZ

You can wind up (dissolve) a family trust if:

• The trust deed allows it
• All beneficiaries agree (in some cases)
• The trust no longer serves its purpose

This process involves distributing assets, finalising financial statements, and ensuring tax obligations are met. A Memorandum of Wishes can help guide trustees, but legal advice is strongly recommended.

How to Set Up a Family Trust

Setting up a family trust involves several steps:

• Determine your goals – asset protection, inheritance control, etc.
• Draft a trust deed with help from a legal or trust specialist
• Appoint trustees – ideally including one independent trustee
• Identify beneficiaries and clearly define their entitlements
• Transfer assets to the trust and properly document gifting or loans
• Maintain records – trust minutes, financials, and correspondence

Already have a Family Trust? Time to Review

Many trusts were set up years ago and no longer reflect current intentions or legal standards.

Use this checklist to review your trust:

Trust Deed

• Does it allow flexibility for future changes?
• Are beneficiaries and powers to appoint new ones clearly identified?
• Should your vesting date be extended to 125 years?

Beneficiaries

• Are your current beneficiaries appropriate?
• Have they been notified and given basic trust information?
• Are there large beneficiary loan accounts?

Trustees

• Do all trustees understand their duties under the Trusts Act 2019?
• Are they still appropriate, willing, and able to act?
• Should you appoint an independent trustee?

Trust Documentation

• Are all key documents held securely and accessible?
• Are trustee appointments and decisions recorded?
• Are records of beneficiaries and trustee contact details up to date?

Memorandum of Wishes & Powers of Attorney

• Do you have a Memorandum of Wishes that reflects your current intentions?
• Do you have Powers of Attorney in place for property and medical care?

In Conclusion

The Trusts Act 2019 introduced greater transparency and accountability for trustees in New Zealand. Ensuring your family trust is robust and compliant is more important than ever.

If you’re unsure whether your trust is still fit for purpose – or you’re thinking of setting one up seek professional guidance to get it right. A well-managed family trust can be a powerful tool for protecting your legacy.

How Drumm Nevatt can help

At Drumm Nevatt & Associates, we help individuals and families across New Zealand ensure their trusts are structured, administered, and reviewed in line with current legislation and best practice.

Whether you’re setting up a new family trust, reviewing an existing one, or need support with trustee responsibilities, our team can assist with:

• Reviewing and updating trust deeds
• Ensuring compliance with the Trusts Act 2019
• Advising trustees on their duties and obligations
• Providing guidance on distributions, gifting, and documentation
• Acting as independent or professional trustees if needed

A well-run family trust provides peace of mind and long-term security. If you’re looking for clarity and confidence in your trust affairs, get in touch with our team – we’re here to help you protect what matters most.