Trusts have been part of New Zealand estate planning and asset protection for many years. Thousands of Kiwi families use them to help protect assets, plan for the future, and pass wealth on to the next generation.

However, changes in the law and how trusts are treated by the courts mean trusts are no longer a one-size-fits-all solution. Whether a trust is right for you now depends very much on your personal circumstances and careful planning.

What is a trust?

A trust is a legal structure where assets are owned and managed by trustees for the benefit of other people, called beneficiaries.

The person who sets up the trust (the settlor) transfers assets into it. Once this happens, those assets are no longer owned personally by the settlor — they are owned by the trustees and must be managed according to the trust deed and the law.

This separation between who controls the assets and who benefits from them is what gives trusts many of their advantages.

Why do people set up trusts?

Trusts can still be useful in the right situations, including:

Asset protection

A trust can help protect assets from business risks or potential creditor claims, provided it is set up properly and well before any issues arise.

Succession planning

Trusts can help preserve wealth for future generations and may simplify estate planning by reducing reliance on wills alone.

Relationship property planning

Trusts may help keep assets separate in the context of a relationship. However, recent court decisions and legislative changes mean this is now much more complex. A Contracting Out Agreement is usually essential, and a trust on its own is unlikely to provide adequate protection. Legal advice is crucial in this area.

Supporting vulnerable family members

Trusts can be structured to provide ongoing financial support for family members who may need long-term assistance.

What recent changes affect trusts in New Zealand?

New trust law

The Trusts Act 2019 came into force in January 2021 and modernised trust law for the first time in decades. It introduced clearer duties for trustees, increased disclosure obligations, and higher governance standards.

While this improves transparency and accountability, it also increases the administrative and legal responsibilities of trustees. For some smaller family trusts, these added obligations may outweigh the benefits.

Increased transparency and reporting

Trusts are now subject to stricter anti-money laundering and counter-terrorism financing requirements. Trustees must provide more information about the trust, including who is involved, how it operates, and where the assets come from.

As a result, trusts are far more transparent than they used to be, which can affect how they are viewed by banks, courts, and regulators.

Changes to the trust tax rate

From April 2024, trustee income tax was increased from 33% to 39% to align with the top individual tax rate. This means Trust income is taxed at the highest marginal rate, a change that may make Trusts less attractive as tax-planning vehicles. Careful advice from a tax advisor is recommended, particularly when considering whether to establish a Trust, and what assets the Trust will hold, to ensure the financial structure of your personal assets and Trust assets is appropriate.

What should you think about before setting up a trust?

Why you want a trust

It’s important to be clear about what you want to achieve and whether a trust genuinely suits your assets, risks, and family situation.

Timing

Timing matters. For example, asset protection benefits may be limited if a trust is set up too late. It may also make sense to align the creation of a trust with major asset changes, such as buying or selling a home.

Ongoing compliance

Trusts are not set-and-forget. Trustees must meet ongoing legal, reporting, and administrative obligations, which vary depending on how the trust is structured.

Professional advice

Trusts can be complex and confusing. Getting legal advice — and reviewing your trust regularly — is essential to ensure it remains appropriate and effective.

Alternatives

In some cases, other structures such as companies, joint ownership arrangements, or a Contracting Out Agreement may better meet your needs.

Final thoughts

Trusts can still be a powerful tool for asset planning and managing family wealth, but they are no longer automatic or simple solutions. Changes in law, tax settings, and regulatory expectations mean trusts must be carefully set up, properly managed, and regularly reviewed.

Before establishing a trust, it’s important to clearly understand your goals, the costs involved, and whether other options might work better for you — now and in the future.

Our team at Checketts McKay Law works with trusts every day, whether that involves setting up a new trust, reviewing an existing one, or winding up a trust that is no longer serving its purpose.

Bridget Liggins

Senior Solicitor

[email protected]

17 Dunmore Street,

Wānaka