June 2025
Can you even remember why you got one? Did the neighbour have one? Maybe you heard about them at that school fundraiser? Or was it the TV – after all, everyone has a trust! Did it seem like a good idea at the time, but now…well, you never really understood it, you just nodded along, and you know you signed something, but – where is that trust deed, anyway?
Welcome to the wonderful world of trusts! There is so much misinformation and uncertainty about trusts, about what they mean, and how they apply to our lives, and to property. Increasingly, lawyers are advising clients in situations where circumstances have changed, and where clients are questioning the continuing need for a trust as part of their business or estate planning structure. Some clients are also facing new life stages and relationship changes, and so they are assessing how best to protect or distribute assets.
Trusts are one of the world’s oldest legal structures, although trusts as a concept in New Zealand are more based on law developed from medieval England.
New Zealand has the Trusts Act 2019, which was introduced into law in January 2021. This legislation does have some new or expanded concepts, but it mainly confirms established trust law and principles that already existed in court decisions (dating back centuries!) and the earlier Trustee Act 1956.
Trusts still play an important role in property planning and protecting family wealth for future generations. A Will is also a form of trust, and so when young children inherit from an estate, funds will be held by the trustees of the estate for their benefit. If you have settled (started) a trust, it’s a good idea to review the terms of the trust (these are in the trust deed) to remind yourself of what it says and to ensure everything is up to date.
Depending on the terms of the trust, trusts in New Zealand can last for up to 125 years. Some of the older trust deeds may state an 80-year duration. This end date is known as the vesting date. There are sometimes ways to wind up (end) a trust before the vesting date. The way in which this process occurs will again depend on the terms of the trust deed, and in some cases the wishes of the trustees and beneficiaries. If there are minor or unborn potential beneficiaries (because trusts can last for generations), their circumstances and needs must also be considered.
The Trusts Act 2019 sets out a framework of trustee duties, including knowing the terms of the trust and to act in accordance with those terms. If trustees are getting older, it is important to ensure that new trustees are available or that there is a mechanism for their appointment. If there has been a change in the property position of the trust, land ownership records may need to be updated.
It is recommended that trustee meetings are held at least on an annual basis, and that trustee decisions are documented. Don’t fall into the trap of treating trust money and assets as though it’s your own personal property! The greater level of independence you can show in the trust and trustee decision-making, the stronger the trust will be. Payments and benefits (known as distributions) can only usually be paid or provided to named beneficiaries of the trust, not to other friends or family members.
The Trusts Act 2019 also includes a framework for the disclosure of information to beneficiaries. While there is a presumption that certain basic information about the trust must be disclosed to beneficiaries, that is not required in absolutely all circumstances. It is important though for trustees to consider the question of disclosure and again, to document their decision-making about this. Your lawyer can discuss the relevant legal factors, particularly where family dynamics are tricky, or where there are minor beneficiaries.
The big question that lawyers are often asked is: what happens if we break up? Like anything, this depends to some extent of the terms of the trust and what is included in the trust deed. If you are single and settling a trust, you need to assess what property would be in the trust, and whether you want any future spouse or partner to be a beneficiary. If you are in a relationship while settling a trust, similar considerations would apply. If, during your relationship, you and your spouse/partner jointly settle a trust, it can be helpful to have in the trust deed what is to happen if you separate – for example, that two separate trusts will be formed, and a share of the trust property re-settled on each. Some may also choose to wind up (end) a trust, on separation. It is important to consider who will be the trustees in that situation, to avoid a potential trustee deadlock where two warring former partners cannot agree on trust matters, when acting as trustees. The timing of settling a trust is also crucial.
It is recommended that you take legal advice to ensure that everyone’s rights are protected and considered, and that you are not running the risk of being perceived to have disposed of assets to a trust to defeat a relationship property claim against your personal assets. If previous generations of your family have settled trusts that you benefit from, or if you have settled trusts yourself, these interests can be protected by you and your spouse/partner entering into a contracting out agreement (‘pre-nup’) to preserve those interests as your separate property.
You may have heard of the term ‘trust-busting’. In a relationship break-up, there are a number of potential claims that can be made against property that is held by a trust. This is an evolving area of law, with some recent and significant Supreme Court decisions. The potential claims include claims based on contribution by the other spouse/partner, claims based on property that has been disposed of to a trust, and claims based on a situation where the rights and powers under the trust deed are closely controlled by one spouse/partner. These types of claims are very fact dependent and the specific terms of the trust deed will likely also be relevant.
While claims against trusts are a growing area of legal dispute, trusts (when documented and administered correctly!) remain an important part of estate, personal, and business planning. Your lawyer can advise you whether a trust is right for you, or whether an existing trust is still fit for the purpose you intend.