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Trusts can be an important tool for both personal asset protection and business succession planning. While trusts have been around for centuries, recent changes in legislation and reporting requirements mean it’s more important than ever to understand what they are, how they work, and why you might establish one. Whether you’re a family looking to secure your wealth, or a business owner planning for growth, understanding trusts is crucial.
A trust is a way to look after your assets (such as money, shares or property) by putting them in the hands of people you trust (the trustees) to manage them for the benefit of others (the beneficiaries). Business owners often use trusts to protect their assets, plan for the future, and make sure their business or wealth is passed on smoothly.
For example, a business owner may transfer their company shares into a trust so that the next generation can benefit, while trustees oversee the company’s governance and financial distributions.
There are several reasons why you may decide to set up a trust. Common benefits include:
Placing assets into a trust can help protect them from personal risk. For example, if you are in business and face potential creditor claims, assets in a trust may be protected from those risks. It’s important to note that this protection is not absolute, courts or creditors may challenge a trust if it is not set up or managed properly.
A trust allows you to control how your assets are distributed after your lifetime. Instead of passing directly through your will, the trust can ensure ongoing management and provide for family members in a more structured way.
Trusts can be used to hold assets for future generations, such as a family home, investment property, or shares in a business. Trustees can make decisions about distributions to beneficiaries at appropriate times.
While not foolproof, a trust may help to separate and protect family assets from claims that can arise under relationship property law.
In some situations, trusts may provide flexibility in how income is allocated among beneficiaries. However, this area is complex, and Inland Revenue has increased its focus on trust compliance in recent years.
Trusts pay tax on any income not distributed to beneficiaries. Under the de minimis rule, if this trustee income is $10,000 or less, a 33% tax rate applies. If the income exceeds $10,000, the rate for the entire amount is 39%. Since 2022, the IRD also requires annual disclosures of trust financial activities and participant details.
See more about trustee tax rates from the IRD here.
Trusts are not “set and forget.” Trustees have ongoing legal duties, including annual financial reporting and filing trust disclosure information with IRD. It’s also important to remember that simply setting up a trust does not automatically protect assets, decisions need to be genuine, documented, and in line with trust law.
Trusts can be complex and time-consuming to administer. You will need a lawyer to do the initial set-up of your trust and there can be ongoing legal, accounting and administration fees.
Before establishing a trust, consider whether the benefits outweigh the costs. For some families and small businesses, a trust may add unnecessary complexity if asset protection or succession planning is not a major concern.
The Trusts Act 2019, which came into effect in January 2021, modernised how trusts are managed, making trustee duties clearer and requiring greater transparency.
The Act outlines key trustee obligations, including the duty to act honestly and in good faith, the duty to keep and provide information to beneficiaries, and the duty to invest reasonably. These duties mean trustees must stay actively engaged in managing the trust, rather than treating it as a passive structure.
Both personal and business trusts require active management, regular review, and compliance with the Trusts Act 2019.
At Nexia New Zealand, we can help you determine whether a trust makes sense for you or your business, and provide ongoing accounting and compliance support to keep your trust in order. If you’re considering setting up a trust or want to review your existing structure, our team of trusted advisors can help.
Nexia New Zealand is one of New Zealand’s leading full-service chartered accounting and business advisory consultancy firms, offering the full range of chartered accountancy, business advisory, corporate advisory, tax consulting, and audit services.
Nexia New Zealand has four offices throughout New Zealand: Victoria Street in Christchurch, Albany on Auckland’s North Shore, Newmarket in the Auckland CBD and Hastings in Hawke’s Bay.
This article provides general information only and should not be relied upon as specific financial, tax, or legal advice. You should seek professional advice tailored to your individual circumstances before making any decisions.
Reach out to one of our trusted Nexia Advisors. We have offices in Christchurch, Auckland and Hastings.
