Trusts in Aotearoa

The NZ Justice site explains that “trusts are an important part of New Zealand society and the economy. It’s estimated there are currently between 300,000 and 500,000 trusts in Aotearoa.

The new Trusts Act 2019 (the Act) will take effect on 30 January 2021. The Act updates and improves the law governing trusts for the first time in more than 60 years. It will apply to all existing trusts in New Zealand, as well as any trust created on or after 30 January 2021.”

What that means is that if you have a trust, are the beneficiary of one, or provide professional services to a trust, there are increased information and reporting requirements you now need to meet. From the 2022 income year onwards, you will need to provide more information about your trust as part of your annual tax return filing process than in prior years. Our take on this in simple terms is that Trusts now require the same level of financial reporting and transparency that small businesses do.

NZ Trust Changes 2022

The official statement from the IRD is below, along with a good summary sheet of the changes at the end of this article:

“From the 2022 tax year onwards more information will be required about a trust’s earnings, settlements and settlors, beneficiaries and distributions, and persons with powers of appointment.

These changes have been made to help IR understand how trusts are being used to accumulate and distribute income. Any trust that makes income in a year, will be required to provide additional disclosures for that year.”

How to Manage Compliance Now

One of the areas in Holdmine that is helpful for exactly this, is the ‘Trusts” section, accessible under ‘Personal Finance’ on either the personal or business plan. This section allows you to create ‘folders’ for as many trusts as you have, upload documentation, notes, contact persons, and all relevant information for as many trusts as you have. An easy way to store information for your own records, and the added bonus of being able to share this section directly with your professional services providers.

With the changes to the reporting requirements, we expect that lawyers, and accountants will need more detail, this is one quick and easy way to have it on hand, ensuring compliance and doing so in a painless way!

Here’s an example:

If you’re a Trust owner, beneficiary, or services provider, and would like to understand more about this, please get in touch.

Is a Trust Needed?

This article on Stuff titled “Top NZ lawyer closed his family trust and others should follow suit” is a little sensationalised describing New Zealand as being ‘over trusted’. This does however prompt two key things – evaluation of the existing trusts and if they are the right vehicle to serve the purpose you intended and the increased compliance costs are valid, and also, the mission for Holdmine – for people to actually have conversations about trusts, who’s involved, who’s a beneficiary and what that even means. Some challenging or uncomfortable conversations now can help ease an emotional and mental burden later.

Legal Vision have a nice summary article which outlines some Trust basics and three situations where a trust might make sense. As always, this is for your information only and engaging a professional to advise you is recommended.