Although the popularity of establishing family trusts has declined since the 1990s and early 2000s, thousands of trusts remain active, which require ongoing maintenance and oversight. Here are five questions every family trustee should ask.
If you are a trustee of a family trust, here are 5 key questions for you to ask yourself:
- Are you complying with your duties as a trustee?
Are you fulfilling your obligations to disclose information to beneficiaries? Are trust assets clearly separated from your personal assets? Are you adhering to any restrictions in the trust deed relating to the distribution of income and/or capital?
- Are there people, or classes of people, named as beneficiaries in your trust deed who you would now not wish to benefit?
Many trusts were historically established with a wide range of potential beneficiaries. Under the Trusts Act 2019, new disclosure obligations mean individuals you may not expect – such as your children’s partners – could request information about the trust.
- Are any key beneficiaries now overseas and/or unlikely to return to New Zealand?
If so, they may face significant disclosure and tax obligations. Distributions to children living overseas could trigger tax liabilities in their country of tax residence. You may need to consider alternative structures for distribution of assets.
- Does your trust have significant beneficiary current account balances (i.e. amounts the trust owes to beneficiaries?)
If asset protection was a key reason for establishing the trust, large outstanding balances may undermine that protection. Further gifting to the trust may still be necessary.
- Do the benefits of having a trust still outweigh the costs of administering it?
Consider both the financial costs – such as preparing accounts and tax returns – and the time and effort required to stay informed about trust law and administrative responsibilities. As life circumstances change, and your risk profile changes, there may be other easier ways of owning and managing your assets.
At JB Morrison we help clients with trust administration and also serve as independent trustees. If you would like help reviewing your family trust, please contact us to arrange an initial consultation.
FOR MORE INFORMATION
If you have any questions about these issues, please feel free to contact our Wellington and Rotorua based trusts experts:
- Andrew Stewart | Wellington Law Partner | 04 495 8921 | [email protected]
