Family Trusts in New Zealand: The Reckoning

In short: New Zealand's trust rules have changed more in five years than in the previous fifty. The trustee tax rate is up to 39%, the Trusts Act 2019 imposes real obligations on trustees, IRD disclosure requirements have expanded significantly, and a 2024 Supreme Court decision has clarified when trusts protect assets in relationship property disputes. If you have a family trust, the question is no longer whether trusts work. It is whether yours still does. Read on for the full picture, or if you already know you need to act, book a complimentary consultation and we will coordinate with your lawyer and accountant.

Few countries are as besotted with trusts as New Zealand. With an estimated 300,000 to 500,000 trusts operating across a population of just over five million, New Zealand holds more trusts per capita than any other nation on earth. Roughly one trust exists for every ten to fifteen people. By comparison, the United Kingdom, birthplace of the common law trust, looks almost restrained.

For decades, the family trust was the Swiss Army knife of Kiwi financial life. Asset protection. Tax efficiency. Succession planning. Relationship property shielding. Residential care subsidy positioning. The humble trust did it all, often for a few thousand dollars in setup costs and an annual accounting bill modest enough to forget about.

Those days are over. Not because trusts have stopped working, but because the rules around them have changed so profoundly, in such a compressed period, that many New Zealanders are now sitting inside structures they no longer fully understand.

Between 2021 and 2025, New Zealand introduced a new Trusts Act, hiked the trustee tax rate by six percentage points, imposed sweeping IRD disclosure obligations, and watched the Supreme Court hand down a landmark ruling on trusts and relationship property. Each change alone would have warranted a serious conversation with your lawyer. Together, they represent the most significant overhaul of the New Zealand trust environment in half a century.

The Tax Hit: From 33% to 39%

The single most talked-about change is the increase in the trustee tax rate from 33% to 39%, effective from 1 April 2024. The rationale was straightforward: after the government introduced a 39% top personal income tax rate in 2021, IRD data revealed a sharp spike in income flowing through trusts. Trust income jumped from $11.4 billion in the 2020 tax year to $17.1 billion in 2021. The inference was obvious, and the government moved to close the gap.

The way the rate works is binary, not graduated. If a trust's net income after deductible expenses is $10,000 or less, all of it is taxed at 33%. If it exceeds $10,000, the entire amount is taxed at 39%. There is no marginal banding. A trust earning $10,001 pays 39% on the full $10,001, not just the dollar above the threshold. Deceased estates receive a three-year grace period at 33%, and trusts established for disabled beneficiaries are similarly protected.

For the average family trust holding a rental property and a modest share portfolio, the maths have changed meaningfully. Consider a trust earning $50,000 in net rental income. Under the old regime, trustee tax would have been $16,500. Under the new rate, it is $19,500, a difference of $3,000 every single year. Over a decade, the additional tax burden compounds to $30,000 before accounting for any growth in rental income.

The critical nuance many people miss: the 39% rate only applies to income retained in the trust. Income distributed to beneficiaries is taxed at their personal marginal rates. A beneficiary earning under $78,100 would pay tax at 33% or less on distributed trust income. This creates an obvious incentive to distribute income rather than accumulate it within the trust, but trustees should tread carefully. When trustees allocate income to a beneficiary for tax purposes, the allocated amount is recorded as a credit in the beneficiary's current account. In practical terms, this becomes a debt the trust owes to the beneficiary, and the beneficiary can request payment. So if a trust allocates $30,000 of income to an adult child purely to reduce the tax bill, the child is legally entitled to ask for the money. Trustees who allocate income on paper but never intend to pay it out may also attract IRD scrutiny.

The PIE Workaround

One planning opportunity the tax rate change has brought into sharper focus is the Portfolio Investment Entity, or PIE. Trusts investing via a PIE fund can access a prescribed investor rate (PIR) capped at 28%, compared to the 39% trustee rate on direct investments. The difference is significant: post-tax returns of 72 cents in the dollar through a PIE versus 61 cents through direct investment.

There is a trade-off, though. As Bell Gully has explained, when a trust invests through a PIE at the 28% rate, the tax paid is final. The trust cannot then allocate the PIE income to beneficiaries as beneficiary income in the usual way. Put simply: the trust pays less tax on the investment returns (28% instead of 39%), but it loses the flexibility to pass the income to family members who might be on even lower rates. Trustees choosing a lower PIR, say 17.5%, preserve the ability to distribute income to beneficiaries, but pay more tax upfront. The right choice depends on the specific circumstances of the trust and its beneficiaries, which is a conversation for your accountant. The Inland Revenue has also signalled it will be watching for artificial or contrived arrangements designed to circumvent the 39% rate, though simple structural choices like investing through a PIE or distributing income to beneficiaries are explicitly accepted as legitimate.

The Trusts Act 2019: More Than Paperwork

If the tax changes hit the wallet, the Trusts Act 2019 hit the filing cabinet. Coming into force on 30 January 2021, the Act replaced trust law provisions dating back over 60 years and introduced a framework of mandatory and default duties for trustees.

The mandatory duties are non-negotiable. Trustees must know the terms of the trust deed, act in accordance with those terms, act honestly and in good faith, act for the benefit of beneficiaries, and exercise powers for a proper purpose. These cannot be modified or excluded, regardless of what the trust deed says.

Default duties, which apply unless the trust deed specifically overrides them, are more granular. They include exercising reasonable care and skill, investing prudently, avoiding conflicts of interest, acting impartially among beneficiaries, and not profiting from the role. For the many Kiwi trusts where Mum and Dad serve as trustees alongside an old friend from the rugby club, this creates real personal accountability.

The document-holding requirements deserve particular attention. Trustees must now retain copies of the trust deed and any variations, records of trust property, trustee decisions, written contracts, accounting records, financial statements, documents relating to trustee appointments and removals, and any letter or memorandum of wishes from the settlor. When a trusteeship ends, all of this must be passed to at least one continuing trustee.

For a trust established in 1995, digging up three decades of records is no small task. Many families are discovering they simply do not have what the law now requires.

Beneficiary Rights Have Expanded

The Act also strengthened the rights of beneficiaries to access information. Beneficiaries must be told they are beneficiaries (which was not always the case previously), provided with trustee contact details, and informed of trustee changes. They can request copies of the trust deed and other trust information.

There is a limited exception: trustees may withhold information if they believe disclosure is not appropriate, perhaps to prevent a young beneficiary from learning too early about a substantial inheritance. But the default position has flipped. Previously, disclosure was at the trustee's discretion. Now, it is presumed.

IRD Disclosure: The Trust Transparency Era

Layered on top of the Trusts Act are enhanced IRD disclosure requirements, introduced in late 2020 and applying from the 2021-22 income year. These require most New Zealand trusts to file additional information with their annual IR6 tax return, including details of all settlors and settlements (via form IR6S), beneficiaries and distributions (IR6B), and persons holding powers of appointment (IR6P). Separately, trusts must prepare financial statements to minimum standards. These statements are not filed with the IR6, but must be held by the trustee and made available if Inland Revenue requests them.

The requirements were introduced under urgency with minimal public consultation, a fact widely noted in professional commentary at the time. The rationale was partly tax compliance, but the disclosures also support New Zealand's anti-money laundering and countering financing of terrorism (AML/CFT) obligations.

A post-implementation review published by IRD in April 2025 recommended maintaining the regime overall, noting it had been effective in identifying non-compliance, particularly around charitable trust misuse and undisclosed taxable activity. The review acknowledged compliance was most difficult in the first year and recommended simplifications, including less granular reporting, better forms, and clearer guidance, with further work flagged on whether small trusts should receive reduced obligations.

For trustees, the practical consequence is clear: the days of a trust existing quietly in the background, with an annual tax return and little else, are finished. Administration costs have risen materially, often by $1,000 to $2,000 per year in additional accounting fees alone.

Trusts and Relationship Property: Cooper v Pinney

Here is where things get genuinely interesting for anyone using a trust to protect family assets.

The Supreme Court's December 2024 decision in Cooper v Pinney clarified one of the most uncertain areas of New Zealand trust law: when can a person's powers under a trust deed be treated as relationship property?

The case built on the 2016 landmark of Clayton v Clayton, where the Supreme Court found Mr Clayton's powers over a family trust were so extensive they were "tantamount to ownership." He could act as sole trustee, add or remove beneficiaries at will, and distribute all assets to himself without breaching any fiduciary duty. The trust, in effect, was a fiction.

Cooper v Pinney involved a more conventional trust. Mr Pinney was a settlor, trustee, and discretionary beneficiary with the power to appoint and remove trustees. But the trust deed required a minimum of two trustees acting unanimously, trustees had to act independently, and Mr Pinney could not remove all beneficiaries other than himself.

The Supreme Court dismissed Ms Cooper's claim. The constraints in the deed meant Mr Pinney's powers did not amount to ownership. His fiduciary obligations to other beneficiaries were real, not theoretical.

For the hundreds of thousands of New Zealand trusts structured conventionally, Cooper v Pinney is reassuring. As Duncan Cotterill's analysis concluded, most trusts resemble the Pinney structure rather than the highly unusual Clayton deed. A properly drafted trust deed, with independent co-trustees, genuine fiduciary obligations, and constraints on self-benefit, continues to provide meaningful protection.

The lesson, though, is not complacency. It is the opposite. Trust structure matters enormously. Any trust where one person effectively controls everything, decides who the trustees are, who the beneficiaries are, and how assets are distributed, remains vulnerable. If your trust deed has not been reviewed since it was drafted, this Supreme Court decision is as good a reason as any to call your lawyer.

The Residential Care Subsidy Myth

While we are dismantling comfortable assumptions, let us address the elephant in the retirement village. Many trusts were established, at least partly, on the premise they would help the settlor qualify for the government's Residential Care Subsidy.

The reality in 2026 is considerably more complicated than many people were led to believe when they set up their trust. The Ministry of Social Development does not simply look at legal ownership. It examines gifting histories, deemed income from trust assets, and whether the settlor "deprived" themselves of assets to qualify. If the answer to the last question is yes, those assets can be added back into the means assessment regardless of when the transfer occurred.

The gifting thresholds are modest. According to Work and Income's current guidance, in the five years before a subsidy application, only $8,000 per year is exempt. Beyond five years, the threshold is $27,000 per couple per year (note: these thresholds can change, so always check the latest figures). A family home worth $1 million, gifted at $27,000 annually, would take 37 years to fully transfer. With New Zealand house prices where they are, the maths simply do not work for many families.

The rules can go further. If the trust owns a property where the applicant once lived and the trustees decline to sell it, MSD may treat the potential income from the asset as available to the applicant, depending on the specific facts. The trust may own the house on paper, but the means assessment can effectively capture it regardless.

None of this means trusts are useless for residential care planning. But based on our experience, interpretations can vary between different regional offices of MSD, and the rules themselves are subject to change. Anyone whose primary motivation for maintaining a trust is subsidy qualification should speak to a specialist lawyer about whether their specific structure actually achieves what they think it does.

So, Should You Keep Your Trust?

This is the question everyone wants answered, and the honest response will frustrate those looking for a simple yes or no: it depends entirely on your circumstances.

There are clear scenarios where trusts remain highly valuable. Business owners face ongoing liability risk, and a trust holding the family home separately from commercial assets provides real protection. Families with blended relationships benefit from the ability to ring-fence pre-relationship assets. Parents wanting to manage intergenerational wealth transfer, perhaps ensuring a 22-year-old does not receive a large inheritance outright, still need a trust or something very like one. And anyone in a high-risk profession, from surgeons to property developers, has good reason to keep personal assets out of their own name.

There are also clear scenarios where trusts no longer justify their costs. If your trust holds the family home and a modest bank balance, earns minimal income, and was established primarily "because everyone had one" in the early 2000s, the ongoing compliance burden may outweigh the benefits. Professional fees alone can run $3,000 to $5,000 per year once you factor in accounting, legal reviews, and meeting the new disclosure requirements. Over a decade, a trust with no compelling purpose is a $30,000 to $50,000 commitment.

"The conversation we have most often with clients right now is not whether trusts work," says Become Wealth financial adviserHayden Mulholland. "It is whether their particular trust, with its particular deed and its particular assets, still does what they need it to do. The answer requires an honest look at the numbers, and it requires a good lawyer."

What to Do Right Now

If you have a family trust, or are a beneficiary of one, there are practical steps worth taking in 2026.

1. Get a trust deed review. If your deed has not been reviewed against the Trusts Act 2019, you are overdue. This is a job for a lawyer who specialises in trust work. Ask specifically about whether the deed's default duty provisions align with the new legislation and whether the trustee appointment structure would withstand scrutiny under the Cooper v Pinney framework.
2. Talk to your accountant about the 39% rate. Understand whether distributing income to beneficiaries would reduce the overall tax burden. If the trust holds investments, ask about PIE structures. If the trust owns a company, ask about the interaction between the 28% company rate and the 39% trust rate.
3. Audit your records. The Trusts Act requires trustees to hold a comprehensive set of documents. If you cannot locate your trust deed, minutes, or financial statements going back to establishment, start filling the gaps now rather than when it matters.
4. Reassess the purpose. The most important question is the simplest one: why does this trust exist? If the original reasons, such as asset protection or estate planning, still apply, the trust is worth maintaining despite the increased costs. If the reasons have evaporated, winding up the trust may be the most sensible path forward.
5. Do not go it alone. Trust law sits at the intersection of tax, property, family, and succession law. A financial adviser can help you understand the numbers, but this is ultimately a legal question. Engage a specialist.

The Bottom Line: New Zealand Family Trusts

New Zealand's trust regime has not been dismantled. It has been modernised, taxed more heavily, and subjected to a level of scrutiny it has never previously faced. For trusts serving a genuine purpose, properly structured and competently administered, the foundations remain solid. The Supreme Court's Cooper v Pinney decision actually reinforced the value of a well-drafted trust deed. The Trusts Act, while demanding, creates a framework where trustees who do the right thing are clearly protected.

But the era of the "set and forget" trust is over. The costs are higher, the obligations are real, and the consequences of getting it wrong, whether in tax, compliance, or family court, are more severe than they have ever been.

If your trust is sitting in a drawer somewhere collecting dust, this is your year to open the drawer, read the deed, and have the conversation you have been putting off. Financial freedom does not come from structures you do not understand. It comes from understanding your full picture and making informed decisions about the tools at your disposal.

Your lawyer, your accountant, and your financial adviser are all going to be involved. You may as well invite them to the same table.

_{Disclaimer: This article is for general information purposes only and does not constitute legal or tax advice. Trust law is complex, and individual circumstances vary significantly. Always seek professional advice from a qualified lawyer and accountant before making decisions about your trust.}