New Zealand Trust Law: A Framework for Modern Asset Protection

• The Trusts Act 2019 codifies trustee duties and requires greater transparency with beneficiaries.
• Trustee income over $10,000 is now taxed at a 39 percent rate as of April 2024.
• New Zealand remains a high-trust jurisdiction with an estimated 300,000 to 500,000 active trusts.
• Regular reviews are essential to ensure trusts withstand relationship property and creditor claims.
• Professional governance is the primary factor in maintaining a trust's legal integrity.

New Zealand has long held a unique relationship with trusts. For a population of about 5 million people, it is estimated that we have between 300,000 and 500,000 trusts. This high volume shows that sophisticated asset planning is a mainstream priority for Kiwi families, rather than something reserved for the ultra-wealthy. However, the landscape has shifted. The introduction of the Trusts Act 2019 and recent tax reforms mean that the old "set and forget" mentality is now a significant risk.

Recent data from Inland Revenue highlights the sheer scale of wealth involved. In the 2024 tax year, income from IR6 returns (the income tax return specifically for an estate or trust) totalled $47.3 billion. Trustee income, which is the income retained by the trust rather than paid out to beneficiaries, increased 167.5 percent to $40.6 billion. Dividends received by trusts also jumped 194 percent to $39.1 billion. These figures, updated by Inland Revenue , show how active trustees have become in the face of a rising tax rate.

The most significant recent change for many of our clients is the increase in the trustee tax rate. From 1 April 2024, the tax rate for trustee income rose from 33 percent to 39 percent. This change aligns the trustee rate with the top personal tax rate, a move designed to reduce the use of trusts as a way to lower tax obligations. According to Deloitte , this shift affects approximately 400,000 trusts across the country.

There is some relief for smaller trusts. A 33 percent rate still applies to trustee income up to $10,000 after expenses. This threshold helps many "ordinary" family trusts that hold a family home and perhaps a small amount of savings. However, for those with significant investment portfolios or commercial assets, the 39 percent rate demands a more deliberate approach to income allocation. We often see clients needing to carefully balance retaining funds for trust growth against distributing income to beneficiaries in lower tax brackets.

The Trusts Act 2019, which came into full effect on 30 January 2021, represents the first major overhaul of New Zealand trust law in over 60 years. It provides a much clearer framework for how trusts must be run. One of the most important changes is the codification of trustee duties. These are divided into mandatory duties, which cannot be changed by the trust deed, and default duties, which apply unless the deed specifically says otherwise. The Act also extended the maximum life of a trust from 80 years to 125 years, allowing for much better intergenerational planning.

In our experience, the biggest practical challenge under the new Act is the obligation to provide information to beneficiaries. Trustees now have a positive duty to consider what information should be shared so that beneficiaries can hold them accountable. This shift towards transparency means that "secret" trusts are a thing of the past. We have seen that robust documentation and clear communication are now the hallmarks of a healthy trust. Our team focuses on providing practical, not over-complicated, solutions for trusts and personal asset planning to help you meet these modern standards.

A common mistake we observe is assuming a trust set up twenty years ago will still protect you today. Relationship property law and creditor protection rules have evolved alongside the Trusts Act. If a trust is seen as an "alter ego" of the settlor (the person who created the trust) or if it was established specifically to defeat the rights of a partner under the Property (Relationships) Act 1976, the courts can look through the structure. This makes the quality of your trust deed and the record of your decision-making more important than ever.

We believe that every trust should undergo a regular "fitness test." This involves reviewing the deed to ensure it allows for modern investment strategies and checking that all trustee resolutions are up to date. We have published several articles on these complex areas, including pieces on fiduciary duties, disclosure and trust variations. These resources examine how the courts are interpreting the new law, including the extent of disclosure required for beneficiaries and how variations can be made even if they might seem detrimental to some parties.

Managing a trust effectively does not have to be an administrative burden, but it does require professional guidance. We offer a range of fixed-fee services to provide certainty for our clients. For those who are unsure where they stand, we offer "The Trust Fix," a one-hour initial consultation for $650.00. This fee is credited back against the cost of any establishment or variation work you choose to proceed with. You can see our fixed-fee pricing for a full range of services, including trust set-up, reviews, and wind-ups.

Whether you are looking to protect a family home or manage a complex commercial portfolio, the goal is the same: peace of mind. By ensuring your trust is compliant with the Trusts Act 2019 and optimised for the current tax environment, you can focus on what matters most: your family's future.

_Disclaimer: This article provides general information only and does not constitute legal or financial advice. Trust law and tax regulations are complex and subject to change. You should seek independent professional advice tailored to your specific circumstances before making any decisions regarding trust structures or asset planning._