Family Trust NZ | Expert Setup & Management

What Is a Family Trust?

A family trust is a legal arrangement where trustees hold and manage assets for the benefit of beneficiaries (usually family members). The trust owns the assets, not individual family members, providing protection from creditors, relationship property claims, and business risks. All trusts must comply with the Trusts Act 2019.

How Family Trusts Work in NZ

In New Zealand, family trusts work by transferring ownership of assets (property, investments, business interests) from individuals to trustees who manage them for beneficiaries. Trustees have legal duties to act in beneficiaries' best interests, keep proper records, and make informed decisions. The trust deed sets out the rules for how the trust operates.

Benefits of Family Trusts

Despite changes in legislation, family trusts remain one of the most effective tools for:

Asset Protection - Protecting family assets from business risks and creditors
Succession Planning - Ensuring smooth transfer of wealth to future generations
Relationship Property - Managing assets in relationships and separations
Estate Planning - Reducing complexity and costs in estate administration
Tax Planning - Legitimate tax structuring within IRD guidelines

When You Need a Family Trust

A family trust is particularly valuable if you:

Own your home and want to protect it
Run a business with liability exposure
Have significant investments or rental properties
Are in a professional role with litigation risk
Want to provide for children from different relationships
Are planning for retirement and aged care

How to Set Up a Family Trust

Initial Consultation

We assess your needs, assets, and family situation

Trust Design

Custom trust deed drafted to meet your specific requirements

Asset Transfer

Strategic transfer of assets to the trust with proper documentation

Ongoing Support

Annual reviews, minutes, and compliance management

Trusts Act 2019 Compliance

The Trusts Act 2019 introduced significant changes to trust law in New Zealand, including:

Mandatory trustee duties and responsibilities
Enhanced beneficiary information rights
Stricter record-keeping requirements
Clarified variation and termination procedures

All our trusts are designed with full compliance from day one, ensuring you meet legal obligations while maximizing benefits.

Types of Family Trusts

Discretionary Trust

Maximum flexibility for trustees to distribute income and assets to beneficiaries

Testamentary Trust

Created through a will, activated upon death for estate distribution

Trading Trust

Holds business assets and operates trading activities

Family Trust vs Other Structures: Comparison

Family Trust vs Testamentary Trust

Feature	Family Trust (Living)	Testamentary Trust
When Created	During your lifetime	After your death (via will)
Asset Protection	Immediate protection from creditors	Only protects beneficiaries after death
Probate	Avoids probate entirely	Estate must go through probate first
Control During Life	You retain control as trustee	No control (not created yet)
Setup Cost	$2,500 - $5,000	Included in will ($850+)
Annual Costs	$800 - $1,500/year	Only after death
Flexibility	Can be modified anytime	Fixed by will terms
Best For	Business owners, asset protection	Children under 18, special needs

Family Trust vs Company

Feature	Family Trust	Limited Company
Purpose	Asset protection & wealth management	Trading & business operations
Ownership	Trust owns assets for beneficiaries	Shareholders own company
Liability Protection	Protects personal assets from business debts	Limits liability to company assets
Tax Rate	Trustee income: 33%	Company: 28%
Distribution Flexibility	Highly flexible to beneficiaries	Dividends to shareholders
Best For	Holding family home, investments	Active trading, business operations
Compliance	Trusts Act 2019, annual minutes	Companies Act, NZBN, financial reports

Pro Tip: Many business owners use BOTH structures - a company for trading operations and a family trust to hold the shares and family assets. This provides comprehensive protection.

How Family Trusts Protect Different Assets

Protecting Your Family Home

Your family home is often your largest asset. Transferring it to a family trust provides:

Creditor Protection: If you run a business or face professional liability, your home is protected from creditors (subject to solvency requirements)
Relationship Property Shield: Assets transferred before entering a relationship are generally protected from relationship property claims
Aged Care Planning: After the 5-year clawback period, your home won't be counted for aged care subsidies means testing
Estate Simplification: Avoids probate and ensures smooth succession to your children

Important: If your home has a mortgage, you'll need a gifting program to gradually forgive the debt to the trust (typically $27,000 per year per person).

Rental Property Protection

Investment properties in a trust benefit from:

Protection from tenant claims and lawsuits
Separation from your personal assets
Tax-efficient income distribution to beneficiaries
Simplified transfer between generations
Bright-line test considerations (10-year period)

Business Asset Protection

For business owners, a comprehensive structure might include:

Trading Company: Operates the business (limited liability)
Family Trust: Owns the company shares
Property Trust: Owns business premises (leases to trading company)
Result: Business risks are quarantined; family assets are protected

Common Family Trust Mistakes to Avoid

❌ Critical Mistakes That Undermine Your Trust

Incomplete Asset Transfer: Setting up a trust but leaving major assets in your personal name defeats the purpose. Ensure all intended assets are properly transferred.
No Annual Minutes: The Trusts Act 2019 requires active governance. Courts may disregard "sham trusts" with no proper administration.
Mixing Personal & Trust Assets: Using the trust bank account for personal expenses or vice versa. Maintain strict separation.
Being the Only Trustee: Having yourself as sole trustee can make the trust vulnerable to challenge. Appoint at least one independent trustee.
Ignoring the Gifting Program: If you transferred a mortgaged property, failing to document annual gifts properly creates compliance issues.
Not Updating After Life Changes: Marriage, divorce, children, new assets - all require trust deed review and potential amendments.
Poor Beneficiary Communication: The Trusts Act gives beneficiaries information rights. Ignoring requests creates disputes.
DIY Trust Deeds: Online templates often miss crucial clauses for NZ law compliance and your specific situation.

Trustee Duties Under the Trusts Act 2019

The Trusts Act 2019 codified mandatory duties for all trustees in New Zealand:

Mandatory Duties (Cannot Be Modified)

Know the trust terms: Read and understand the trust deed thoroughly
Act in accordance with trust terms: Follow the deed's provisions exactly
Act honestly and in good faith: No self-dealing or conflicts of interest
Act for benefit of beneficiaries: All decisions must benefit beneficiaries as a whole

Default Duties (Can Be Modified in Deed)

Exercise care and skill: Standard of a prudent person of business
Invest trust property prudently: Diversify and manage risk appropriately
Not profit from trusteeship: Unless deed allows trustee fees
Act unanimously: Unless deed allows majority decisions
Avoid conflicts of interest: Disclose and manage any conflicts
Impartiality: Balance interests of different beneficiaries fairly

Trustee Liability: Breaching these duties can result in personal liability for trustees, including repayment of lost trust funds. This is why professional guidance and annual administration is crucial.

Tax Implications

Trustee Income Tax

Trusts are taxed at 33% on income retained by trustees. However, income distributed to beneficiaries is taxed at the beneficiary's personal rate, allowing tax-efficient income splitting.

Distribution Strategies

Distribute to adult children in lower tax brackets
Consider beneficiaries' other income sources
Document all distributions with trustee resolutions
Ensure distributions are genuine (paid to beneficiaries)

Property Transfers & Bright-Line Test

Transferring property to a trust is a disposal for tax purposes. The 10-year bright-line test may apply if you acquired the property after 27 March 2021. Seek tax advice before transferring investment properties.

Gift Duty Abolishment

While gift duty was abolished in 2011, relationship property rules still apply. We typically recommend gifting programs of $27,000 per year per person to minimize relationship property risks.

Real-World Case Studies

Case Study 1: Business Owner Protection

Client: John, 45, owns a construction company with $2M revenue, family home worth $1.2M, wife Sarah, two children (ages 12, 14).

Problem: Construction industry has high liability risk. One large claim could bankrupt the business and take their family home.

Solution:

Created family trust to own family home and investment property
Transferred shares of construction company to trust
Set up property trust to own business premises (leased to company)
Implemented gifting program for mortgaged home

Result: John's family home and investment assets are protected from business creditors. When a subcontractor claim arose ($300k), the liability was limited to the trading company's assets. The family home remained safe.

Case Study 2: Blended Family Planning

Client: Maria, 52, entering second marriage. Has two adult children from first marriage and owns $800k home (mortgage-free). New partner David has one child from his first marriage.

Problem: Wants to ensure her children inherit her home while supporting David during their relationship.

Solution:

Established family trust before marriage
Transferred home to trust (Maria's children as final beneficiaries)
Maria and independent trustee appointed
Relationship property agreement signed before marriage
Will created with testamentary trust provisions

Result: Maria's home is protected from relationship property claims. David has right to occupy during their relationship, but the home will pass to Maria's children. Clear structure prevents future family disputes.

When NOT to Use a Family Trust

Family trusts aren't suitable for everyone. Consider alternatives if:

Limited Assets: If your only asset is a modest home (under $500k) with no other income/investments, a trust's annual costs may outweigh benefits. A will might suffice.
Young with No Dependents: If you're in your 20s with no property, children, or business, wait until your situation changes.
Need to Avoid Existing Creditors: You cannot use a trust to avoid existing debts (fraudulent conveyancing laws). Trusts only protect against future risks.
Planning Mortgage Application: Some banks treat trust assets differently in lending assessments. Set up your trust AFTER securing your mortgage if timing is tight.
Can't Commit to Compliance: If you're unwilling to maintain annual minutes, records, and proper governance, a trust becomes a liability rather than asset.

Getting Started: Next Steps

Book Free Consultation: We'll assess your situation and determine if a trust is right for you
Review Your Assets: Identify what should be protected (home, investments, business)
Discuss Family Dynamics: Understand beneficiary needs and trustee appointments
Receive Custom Proposal: Detailed quote and trust structure recommendation
Trust Deed Drafting: Professional preparation compliant with Trusts Act 2019
Asset Transfer: We handle all legal documentation for property transfers
Ongoing Support: Annual administration ensures your trust remains effective

Frequently Asked Questions

How much does it cost to set up a family trust in NZ?

Setting up a family trust typically costs between $2,500 and $5,000 depending on complexity. This includes trust deed drafting, initial consultation, and asset transfer documentation. Annual administration costs range from $800 to $1,500 for ongoing compliance and record-keeping.

Do I still need a family trust after the Trusts Act 2019?

Yes. While the Trusts Act 2019 introduced new compliance requirements, family trusts remain highly effective for asset protection, succession planning, and estate management. The Act modernized trust law but didn't reduce the benefits of having a properly structured and maintained trust.

How long does it take to set up a family trust?

The process typically takes 2-4 weeks from initial consultation to having your trust deed signed and assets transferred. Complex situations involving multiple properties or business interests may take longer. We work efficiently while ensuring everything is done correctly.

Can my home be protected in a family trust?

Yes, transferring your home to a family trust can provide protection from business creditors, professional liability, and relationship property claims. However, there's a 5-year clawback period for aged care subsidies, and proper gifting procedures must be followed to avoid relationship property issues.

What's the difference between a family trust and a will?

A will takes effect after death and assets go through probate. A family trust operates during your lifetime, provides immediate asset protection, avoids probate, and offers flexibility in asset management. Many people have both - a trust for asset protection and a will for personal items and final wishes.

Who should be the trustees of my family trust?

Trustees should be trustworthy, financially responsible, and capable of managing trust affairs. Common options include: family members, professional trustees (lawyers/accountants), or a combination. We recommend at least 2-3 trustees with different perspectives for balanced decision-making.

Does a family trust protect against relationship property claims?

Yes, but with conditions. Assets must be in the trust before entering a relationship or de facto partnership. The Property (Relationships) Act has specific rules about trust property, and proper legal structure is essential. Transfers after entering a relationship may be challenged.

What are the ongoing obligations for a family trust?

Under the Trusts Act 2019, trustees must: hold annual meetings, keep proper records of decisions, maintain trust accounts, provide information to beneficiaries on request, review the trust deed periodically, and ensure compliance with tax obligations. Annual professional support typically costs $800-$1,500.

Can I be both trustee and beneficiary?

Yes, it's common for family members to be both trustees and beneficiaries. However, you should have independent trustees as well to avoid conflicts of interest and ensure proper governance. This structure maintains the trust's integrity while allowing family involvement in decisions.

How do I know if a family trust is right for me?

Consider a family trust if you: own your home (value $500k+), run a business, have professional liability exposure, want to protect assets from relationships, have blended family situations, or are planning for retirement. Request a free consultation for a personalized assessment of your situation.

Family Trusts in New Zealand: Complete Guide