The Trusts Act 2019 came into force at the end of January 2021 and replaces the Trust Administration Act 1956.
Reasons for winding up a family trust early include:
- Residential Care Subsidy (RCS) eligibility issue – In 2013, New Zealand Court of Appeal (Bridgfold v MSD) decided the applicant for the RCS, along with their spouse or partner, could gift a total of $27,000 per couple per year only, and that any gifting beyond that amount was regarded as deprivation of assets by Mistry of Social Development.
- The purpose for establishing the trust in the first place no longer exists – For example, the trust was established to fund the education of certain offspring, and they have now ended their education.
- Succession Planning Changes – the trust was set up for the benefit of parent/s and children but the parents are now deceased – so the children might decide to wind up the trust and distribute the assets among themselves.
- Relationship Breakdown – the trust was set up by a couple, and that couple has decided to separate.
- Tax Obligations and Reporting requirements – the trustees think there is no longer any benefit to having a family trust. The new Trusts Act kicks in in 2021 making trusts more expensive, and time-consuming to operate due to more tax obligations and reporting requirments by the Government.
Trusts which own mortgages assets would be more complicated to shut down, as creditors would have to agree to re-arranging the debt.
There are lots of trusts in New Zealand that are no longer needed, but before making the decision to wind up, it is important to get both legal and accounting advice.
If you’re thinking about dissolving your trust and would like some advice, it is just one click away.
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