A family trust can be an important part of managing family assets, property and long-term financial planning. However, establishing a trust is only the first step. Its purpose, assets, beneficiaries and administration should be reviewed regularly to ensure it continues to meet your needs.
In New Zealand, the Trusts Act 2019 sets out important responsibilities for trustees, including duties to manage trust property properly, maintain records and consider beneficiaries' rights to information.
Whether your trust was established recently or many years ago, a review can help identify outdated arrangements, administrative gaps and potential tax issues before they become bigger problems.
1. What is a family trust review?
A family trust review is an assessment of the trust's structure, purpose, assets, beneficiaries, trustees, financial records and ongoing obligations.
It considers whether:
The trust is still achieving the objectives for which it was established.
The trust deed reflects your current circumstances and intentions.
The appointed trustees are suitable and understand their responsibilities.
The trust's assets and liabilities are properly recorded.
Beneficiaries are being treated appropriately.
Tax returns and reporting obligations are up to date.
Trust decisions are properly documented.
A review may identify that no major changes are needed. In other cases, it may highlight the need for changes to the trust deed, trustee arrangements, financial records or administration.
2. When should you review your family trust?
There is no single review date that suits every family trust. However, certain events should prompt trustees and families to reassess their arrangements.
A. Changes in family circumstances
Family circumstances can change considerably over time. A trust established when children were young may need a different approach once they become adults.
Consider a review following:
Marriage or entering a new relationship.
Separation or divorce.
Birth of children or grandchildren.
Death of a trustee, settlor or beneficiary.
Children becoming financially independent.
Changes in the needs of elderly or dependent family members.
Significant changes in family relationships.
For example, a trust may have been established to provide for young children and protect family assets. Years later, those children may have their own families, homes and financial responsibilities. The trustees should consider whether the existing arrangements remain appropriate.
B. Buying or selling property
Property is often one of the most significant assets held by a family trust.
A review is particularly important when the trust:
Purchases a residential or commercial property.
Sells an existing property.
Purchases land for development.
Subdivides land or undertakes a development project.
Refinances an existing mortgage.
Transfers assets between related parties.
Trustees should ensure that property transactions are properly authorised and documented.
They should also consider the financial and tax implications of each transaction, including GST where relevant, income tax, interest deductibility and the tax treatment of any sale.
Property transactions involving trusts can have complex consequences. It is important to obtain appropriate tax and legal advice before proceeding.
C. Changes in trustees
Trustees are responsible for managing the trust and making decisions in accordance with the trust deed and applicable law.
Over time, an existing trustee may:
Retire or wish to step down.
Pass away.
Become unable to manage their responsibilities.
Move overseas.
No longer be suitable for the role.
When this happens, the trust deed should be checked to establish how a replacement trustee can be appointed.
Trustees should also ensure that the required appointment, retirement or removal documents are completed and that relevant records are transferred to the continuing or new trustees.
A trustee change is not simply an administrative update. It is important that the incoming trustees understand the trust's assets, liabilities, history and obligations.
D. Changes in financial circumstances
A family trust may have been established when the family owned one property and had relatively straightforward financial arrangements.
Today, it may hold multiple properties, investment portfolios, business interests or substantial cash reserves.
A review should consider:
The current value of trust assets.
Outstanding mortgages and other liabilities.
Loans between the trust and family members.
Beneficiary current accounts.
Income received by the trust.
Expenses paid by the trust.
Investment performance.
Whether assets are adequately insured.
Trustees should understand the trust's financial position before making decisions about distributions, investments or additional borrowing.
E. Changes in the trust's original purpose
A trust should continue to serve a genuine and clearly understood purpose.
For example, the original intention may have been to hold the family home, provide for children or manage investments for future generations.
Over time, those objectives may change.
Trustees should consider whether the trust still provides the intended benefits and whether the current structure remains practical.
If the original purpose no longer exists, it may be appropriate to obtain legal advice about amending the trust, restructuring arrangements or bringing the trust to an end.
A trust should not simply continue without consideration of its purpose and ongoing costs.
3. Is your trust deed still suitable?
The trust deed is one of the most important documents governing the trust. It establishes the rules, powers and responsibilities that trustees must follow.
During a review, consider whether the deed:
Clearly identifies the beneficiaries.
Provides suitable powers for managing trust assets.
Explains how trustees can be appointed or removed.
Contains appropriate provisions for distributions.
Allows the trust to manage investments and property.
Includes appropriate borrowing and lending powers.
Sets out how trustee decisions must be made.
Contains suitable provisions for variation or termination.
Older trust deeds may not reflect current family circumstances or the way the trust is now being administered.
However, changing a trust deed is not simply a matter of updating wording. Any variation must be permitted by the deed and comply with applicable legal requirements.
A qualified trust lawyer should review and advise on proposed changes.
4. Understand your responsibilities under the Trusts Act 2019
The Trusts Act 2019 introduced a clearer framework for trustee duties and obligations.
Under the Act, trustees have mandatory duties that cannot be excluded or modified. These include:
Knowing the terms of the trust.
Acting in accordance with the trust terms.
Acting honestly and in good faith.
Acting for the benefit of beneficiaries or to further a permitted purpose.
Exercising trustee powers for a proper purpose.
The Act also contains default duties, which generally apply unless modified or excluded by the trust deed. These include duties relating to prudent investment, avoiding conflicts of interest and acting impartially.
Trustees should not assume that appointing an accountant or lawyer removes their personal responsibilities. Each trustee must understand their role and participate appropriately in trust decisions.
Keeping beneficiaries informed
The Act establishes a presumption that trustees should make certain basic trust information available to beneficiaries.
This includes:
Confirmation that a person is a beneficiary.
The names and contact details of trustees.
Details of trustee appointments, removals and retirements.
Information about a beneficiary's right to request trust documents and further information.
Trustees must consider relevant factors before deciding whether information should be withheld. They must also consider beneficiary information obligations at reasonable intervals.
This makes it important to review how the trust communicates with beneficiaries and how decisions about disclosure are documented.
5. Are your trust records up to date?
Good record keeping is essential for effective trust administration.
The Trusts Act 2019 requires trustees to keep core trust documents, so far as is reasonable. These include the trust deed, variations, records of trust property, trustee decisions, contracts, accounting records and financial statements, trustee appointment documents and any memorandum of wishes.
During a review, check that you have:
The original trust deed and all variations.
Current trustee details and appointment documents.
A complete list of trust assets and liabilities.
Bank statements and accounting records.
Financial statements.
Records of income and expenses.
Details of loans and advances.
Records of beneficiary distributions.
Trustee meeting minutes and written resolutions.
Relevant correspondence and legal documents.
Trustee decisions should be recorded clearly, including the reasons for significant decisions.
This is particularly important when trustees are making decisions about property sales, investments, loans or distributions to beneficiaries.
6. Review your family trust's tax obligations
Tax compliance is another important part of a family trust review.
Depending on its activities and circumstances, a trust may have obligations relating to income tax, GST, financial reporting and information disclosure.
Income tax returns
Trusts that derive taxable income generally need to meet the relevant Inland Revenue filing requirements.
Trustees should review:
Whether the trust has filed its required income tax returns.
Whether all income has been correctly declared.
Whether expenses and deductions are properly supported.
Whether beneficiary income has been correctly recorded.
Whether tax payments and any outstanding liabilities have been addressed.
The tax treatment of income retained by trustees can differ from income allocated or distributed to beneficiaries. The timing and nature of distributions are important.
Trust tax rates
New Zealand's trustee income tax rate is generally 39% for trustee income from the 2024–25 income year onwards, subject to specific exceptions.
The treatment of beneficiary income is different and depends on the applicable tax rules and circumstances.
Trustees should not assume that distributing income to beneficiaries will automatically produce a tax saving. Distributions must be genuine, properly authorised and correctly recorded.
Additional Inland Revenue reporting requirements
Since the 2021–22 income year, certain domestic trusts have been required to provide additional information to Inland Revenue through their annual trust tax returns.
Depending on whether the requirements apply, information may include:
Details of settlors.
Details of beneficiaries and distributions.
Details of people holding powers of appointment.
Trust financial performance.
Assets and liabilities.
Settlement information.
Not every trust is subject to these additional reporting requirements. For example, certain non-active trusts and other specified categories are excluded.
Trustees should check the current Inland Revenue requirements rather than assuming that an older filing approach is still sufficient.
7. Review loans and transactions involving family members
Many family trusts have financial arrangements involving their settlors, trustees or beneficiaries.
These may include:
Loans from the trust to beneficiaries.
Money advanced by a settlor to the trust.
Beneficiary current accounts.
Unpaid distributions.
Personal expenses paid by the trust.
Family members using trust-owned property.
These arrangements should be properly documented and reflected in the trust's financial records.
For example, if a trust owns a property that a family member occupies, trustees should understand the basis on which the property is being used and whether the arrangement is consistent with the trust deed and their duties.
Similarly, loans should have clear terms and appropriate records. Informal arrangements can create accounting, tax and legal complications later.
8. Are the trust's assets being managed properly?
Trustees have a responsibility to manage trust property in accordance with the trust deed and their legal duties.
A review should consider whether:
Property is properly maintained.
Insurance cover is appropriate and current.
Investments remain suitable.
Borrowing levels are manageable.
Trust assets are properly recorded.
Related-party transactions are documented.
Decisions are made in the interests of beneficiaries.
Trustees should also consider whether the trust has sufficient funds to meet ongoing expenses, rates, insurance, maintenance, professional fees and loan repayments.
A trust that owns valuable property but has insufficient cashflow may face financial pressure.
9. Should you keep or wind up your family trust?
Not every family trust needs to continue indefinitely.
Sometimes the original purpose has been achieved, the trust no longer provides a practical benefit, or the cost and administration outweigh the advantages.
Before making a decision, consider:
The original reason for establishing the trust.
The current value and nature of trust assets.
The needs and interests of beneficiaries.
Existing loans and liabilities.
Tax consequences of transferring or distributing assets.
Legal obligations under the trust deed.
The costs of ongoing administration.
Whether the trust can be properly brought to an end.
Winding up a trust is not simply a matter of closing its bank account. Trustees must follow the trust deed and applicable legal requirements, deal with liabilities, account for assets and consider any tax consequences.
Professional legal and accounting advice is essential before proceeding.
10. How often should you review your family trust?
There is no universal statutory rule requiring every ordinary family trust to undergo a complete professional review every year or every three years.
However, trustees should review the trust's administration and obligations at reasonable intervals. A regular review is good governance and helps identify problems early.
A practical approach is to:
Review financial records and tax obligations annually.
Review trust assets, liabilities and insurance regularly.
Reassess trustee and beneficiary arrangements when circumstances change.
Obtain a more comprehensive legal and financial review when significant changes occur.
The appropriate frequency will depend on the trust's size, complexity, assets and activities.
11. Family Trust Review Checklist
Use this checklist to identify areas that may need attention.
Is the original purpose of the trust still relevant?
Is the trust deed still suitable?
Are all trustees willing and able to fulfil their responsibilities?
Are trustee appointments and changes properly documented?
Is the beneficiary information current?
Are beneficiary information obligations being considered?
Are trust assets and liabilities accurately recorded?
Are property and investment arrangements appropriate?
Are loans and beneficiary accounts properly documented?
Are trustee decisions recorded in writing?
Are annual financial statements prepared?
Are income tax and GST obligations up to date?
Have applicable Inland Revenue disclosure requirements been met?
Is the trust still financially practical to maintain?
If several items need attention, it may be time to arrange a more comprehensive review.
12. How Tax Professionals Can Help
Managing a family trust involves more than maintaining a trust deed. Trustees also need to understand the financial position of the trust, maintain accurate records and meet applicable tax obligations.
Tax Professionals can assist with the financial and accounting aspects of trust administration, including:
Trust accounting and financial statements.
Income tax return preparation and filing.
Reviewing trust income and distributions.
Beneficiary current account reconciliations.
Reviewing trust assets, liabilities and financial records.
Inland Revenue reporting requirements.
General tax planning and compliance support.
Where legal changes to a trust deed, trustee appointments or termination are required, we recommend working with a qualified trust lawyer. Tax Professionals can work alongside your legal adviser to help ensure the financial and tax aspects are properly considered.
Is It Time to Review Your Family Trust?
Your family circumstances and financial goals can change over time. A regular review helps ensure your trust remains properly managed, financially organised and aligned with its intended purpose.
If you have not reviewed your family trust for several years, now is a good time to check whether everything is still in order.
Contact Tax Professionals today to discuss your trust accounting and tax compliance requirements.
Tax Professionals
Phone: 09 625 0035
Website: www.taxprofessionals.co.nz
This article provides general information about New Zealand family trusts and is not legal or tax advice for a particular situation. Trust arrangements differ, and trustees should obtain appropriate legal and accounting advice before making decisions or changing trust arrangements.