Do trusts still have a place?

Do trusts still have a place?

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For a long time, the trust was almost the default answer. Buy a house, start a business, build some wealth, and an advisor would have said, “You should have a trust.”

That advice often made sense when it was given. But tax settings and trust law have changed, and chances are your family, business and assets have changed too.

If your trust has been around for 10, 20 or 30 years, it is worth asking a simple question: does it still earn its place?

Trusts aren’t obsolete. But they shouldn’t continue on autopilot.

What has changed?

The tax landscape has changed. Tax should not be the sole reason for establishing or maintaining a trust. However, tax is an important part of deciding whether a structure remains appropriate.

From 1 April 2024, the trustee tax rate generally increased from 33% to 39%. A 33% rate continues to apply to trusts with $10,000 or less of net income, subject to the relevant rules. This means retaining income in a trust can now produce a different tax outcome than it did previously.

That does not mean trusts cannot be tax efficient.

Trust income can still be allocated to beneficiaries in appropriate circumstances, with beneficiary income generally taxed at the beneficiary’s applicable rate. Trusts investing through portfolio investment entities (PIEs) may also be able to access a maximum prescribed investor rate of 28%.

The right answer depends on the trust, its beneficiaries, its investments and what the trustees are trying to achieve. The key is that tax should support a genuine family, investment or succession strategy rather than be the strategy itself.

There is more responsibility involved in running a trust. The Trusts Act 2019 brought trustee duties into much sharper focus, including duties around how trustees act, make decisions, retain records and provide information to beneficiaries. Combined with Inland Revenue reporting requirements and ongoing accounting and legal costs, trusts are no longer something that should simply sit in the background untouched.

Asset protection is not automatic.

A trust can form part of an effective asset protection strategy in the right circumstances, but simply transferring assets into a trust does not make them untouchable. Timing, purpose and how the trust has actually been administered can all matter.

Why do people still use trusts?

The strongest reasons today tend to be about people, risk, succession and the long-term management of family wealth.

– Succession and family wealth
A trust can provide a structure for holding and managing assets across generations instead of requiring assets to pass outright from one person to another.

That can be particularly valuable for family businesses, farms, significant investment portfolios, or families wanting assets managed for children and grandchildren over the longer term.

Learn more about our Succession Planning services here.

– Protecting beneficiaries
Not every beneficiary is ready or able to manage an inheritance. A trust allows assets to be managed for beneficiaries rather than simply transferring ownership to them.

That may be relevant where beneficiaries are young, vulnerable, financially inexperienced or simply at a stage of life where outright ownership is not appropriate.

– Relationship property
A properly established and administered trust may form part of a family’s wider relationship-property planning. It is not an automatic solution, and the circumstances, timing and operation of the trust are important.

– Business risk
For business owners and people exposed to genuine commercial or professional risks, separating certain family assets from personal ownership can still make sense. Again, timing and circumstances matter.

– Control and continuity
Trusts can provide continuity in the ownership and management of family assets when circumstances change. This can be particularly useful where a family wants a business, farm or investment portfolio managed according to a longer-term plan.

Does your trust still make sense?

A trust is ultimately a structure for owning and managing assets. It cannot fix poor succession planning, family disagreement or unclear intentions.

If your trust has been in place for many years, there are some useful questions to ask:

1. Why was the trust originally established, and is that reason still relevant?
2. What does the trust own today, and why are those assets still held there?
3. Who are the beneficiaries now, and have their circumstances changed?
4. Is the trust managing its income in the best way?
5. What role should the trust play in succession and estate planning?
6. Could a simpler structure achieve the same objectives?
7. If the trust is no longer needed, what would winding it up involve?

Winding up a trust is not simply an administrative decision. Transferring assets can have tax, legal and commercial consequences that need to be considered before anything changes.

So, do trusts still have a place?

Absolutely, but the reason for having one should be clear. Trusts can still be valuable for families with genuine succession needs, family wealth they want to manage across generations, beneficiaries whose interests need protecting, or commercial risks that justify a considered ownership structure.

For other families, a trust established many years ago may no longer be doing enough to justify its complexity and cost. And many trusts will sit somewhere in between. They are still useful, but the way they are structured, invested or administered may need to change.

The question is no longer simply, “Should I have a trust?” It is, “What is this trust actually achieving for me and my family today?”

Time for a review?

If it has been a few years since anyone properly looked at your trust, now is a good time. We can look at why it exists, what it owns, how it is being managed, its tax position and how it fits alongside your wider family, business and succession plans. Sometimes the answer is to leave it alone. Sometimes it is to make changes. And sometimes, where the trust no longer serves a useful purpose, it may be appropriate to consider winding it up.

Talk to our experts

Talk to your local Nexia advisor to start the conversation.

Learn more about our Estate Planning & Asset Protection services here.