Winding up your Family Trust

In light of recent changes in tax regulations, increased compliance obligations, and rising administrative costs, why wouldn’t you wind up your Trust right now?

The downsides

‍Trusts are now being taxed at 39%.  The Trusts Act 2019 is in force, with greater disclosure and compliance obligations, and increased accountability of trustees to beneficiaries.  Then you’ve got the complexities of AML, and borrowing against a Trust is more difficult.  On top of all of that, independent trustees, accountants, and lawyers are asking for more money to manage and maintain your Trust records.  What used to be relatively simple is suddenly complicated, time-consuming, and expensive. Is it time to simplify your life and wind the damn thing up?

The answer is maybe (sorry – you didn’t really expect a lawyer to give you an easy answer!?). You need to balance the above downsides against the value of your Trust to you.  

A quick reminder of the possible current value of your Trust:

• Asset protection – protecting your key assets from creditors.  No-one else is better equipped than you are to consider your own situation and risk profile.
• Relationship property protection. You might want to keep your Trust in place so that when you die, your partner/spouse can’t lose half your assets to a future partner via a relationship property claim.  Or you might want to retain your Trust so that it can receive your inheritance (i.e. from parents) to keep it separate from your spouse/partner.  
• Inheritance planning. You might have children you want to treat un-equally when it comes to ‘their’ inheritance.  Or you might want a professional trustee to assist them with managing their newfound wealth.
• Tax efficiency. Despite the increased tax rate, your Trust may still allow you to optimise your tax position.

Considerations & Guidance

Older people (in particular) can be more likely to believe that their Trust has ‘served its purpose’ and they’re better off without it.  Let us know if you need help deciding what’s right for you, or if you’ve already decided to initiate the wind-up process. Trust wind-ups (and the conveyancing that goes with them) is very routine legal work, and we’re very good at it.  Once we know your situation, we are generally able to give you a quote for the work involved when it comes to winding up your Trust.

For more details, please contact:

Brandon Cullen (Partner) on (09) 966 3609 (bcullen@mcveaghfleming.co.nz)

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Trusts

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