Are trust structures still relevant?

Business owners ask this question often, and with good reason. With all the changes to New Zealand’s (NZ) trust laws and tax environment, it’s no wonder many of you are questioning whether these structures are still worth the effort. I see it all the time – business owners hanging onto outdated structures that stopped serving their purpose years ago while others are throwing away arrangements that could still offer real value.

The traditional role of trusts in NZ’s tax and asset planning has certainly changed over the years. Those legislative changes – particularly the Trusts Act 2019 – have piled on compliance requirements and made everything more transparent. And let’s not forget how the tax rules keep shifting, affecting how these trusts actually work within your broader planning strategies.

Despite this, trusts haven’t become irrelevant. Far from it. For many business owners and property investors, they’re still incredibly useful tools. The difference now is that you need to be much smarter about how and why you use them compared to 10 or 20 years ago. It’s all about knowing when a trust gives you genuine advantages and when you might be better off with something else.

Understanding why you have a trust in the first place is a good place to start when considering the relevance issue. Time and time again, a new client meets with me and tells me they have a family trust within their structure. But when I question them as to what purpose the trust has for them, they often shake their heads, saying that the trust has never been used and that it was simply set up on the advice of their lawyer.

Beyond tax avoidance

A fundamental misconception persists that trusts exist mainly for tax advantages, although the benefit is somewhat watered down by the increase in the trustee tax rate to 39% effective 1^st April 2024.

While trusts can still create legitimate tax efficiencies in some situations (like allocating income to beneficiaries on lower tax rates), that’s rarely where their real value lies these days. The real benefits are in asset protection, succession planning, and handling complex family arrangements.

You need to start your trust planning by being crystal clear about what you’re trying to achieve. Are you worried about keeping your business running smoothly across generations? Protecting your assets from commercial risk? Managing property investments? Setting up frameworks for distributing family wealth? Your answers should drive your structural decisions, with tax considerations forming just one piece of a much bigger puzzle.

The property connection

For most NZ business owners, property holdings are deeply intertwined with business and personal planning. Trusts can create crucial separations between different asset classes, especially when your business activities might put your property assets at risk.

Property-owning trusts still offer planning advantages when they’re properly set up and maintained. But you need to view them as part of a comprehensive framework that takes into account:

• Whether you’re more focused on preserving wealth or growing it

• How your property relates to your operating business assets

• Your financing arrangements and guarantees across different entities

• Your family’s succession plans for different asset classes

The most successful approaches typically coordinate trust planning with other structural elements rather than treating trusts as one-size-fits-all solutions.

Common trust arrangements requiring review

In my advisory work, I often come across trust structures that need updating because of changing family situations or new legal requirements.

Historical trusts with unclear purposes – Many trusts set up decades ago have outlived their original objectives or are operating under outdated assumptions. Regular purpose reviews to figure out if these structures are still doing anything useful for you.

Multiple trust arrangements with overlapping assets – Some may have complex structures that were created bit by bit over time, and they often contain redundancies that just increase compliance costs without giving you any additional benefits. Consolidation can often achieve the same objectives with much simpler administration.

Passive trusts with minimal activity – If the trust holds assets but doesn’t conduct much actual administration, it might be vulnerable to challenge. Active trustee engagement and proper documentation have become increasingly important under current legislation.

Trusts with misaligned professional advice – When your legal, accounting, and financial advisors work in isolation, your trust structures can easily become disconnected from your overall planning objectives. Coordinated professional advice ensures everything is strategically aligned.

A structured approach to trust assessment

When revisiting your trust arrangements, I recommend following a structured assessment process that looks at both how the trust was formed and how it’s currently operating:

1. First, get clear on the purpose. What specific objectives does the trust serve in your current situation? This foundational question determines everything else. When reviewing existing trusts, consider both legal compliance and practical effectiveness. A technically valid trust that doesn’t advance your objectives is just creating unnecessary administration. For new planning, start with clearly articulated goals rather than predetermined structural solutions. Your specific structures should follow well-defined objectives.
   
2. Review your trustee arrangements. Are your trustees still appropriate for what you need now? Are they actively fulfilling their obligations? Have you addressed trustee succession? Remember that trustees bear significant responsibilities that require proper engagement. When selecting trustees, prioritise capability and commitment rather than mere convenience.
   
3. Evaluate your documentation practices. Too many trusts operate with woefully inadequate record-keeping, creating both compliance and practical risks. Modern trust administration requires far more documentation than most structures currently maintain.
   
4. Examine your beneficiary communications. The Trusts Act 2019 created new disclosure obligations that many trusts haven’t properly implemented yet. You need clear communication policies to manage these requirements effectively.
   
5. Finally, commit to periodic professional reviews. Tax rules, trust law, and family circumstances all change over time. Regular professional assessments help ensure your trust arrangements remain fit for purpose. Proper trust administration requires an ongoing investment of time and resources. The days of ‘set and forget’ trust arrangements are long gone, replaced by expectations of active and documented governance.

Beyond trusts: the integrated planning perspective

While trusts are still valuable tools, they work best as components of broader strategic planning. The most effective approaches integrate trust structures with:

• Comprehensive succession planning for your business interests
• Estate planning that addresses both financial and non-financial legacies
• Risk management frameworks that identify and mitigate various threats
• Investment strategies aligned with your long-term family objectives

This integrated perspective helps ensure that your trusts serve their proper role rather than becoming default structures that you apply without sufficient strategic consideration.

For business owners and property investors, periodic trust reviews represent an important component of overall planning hygiene. These reviews help identify both risks and opportunities that might otherwise remain hidden in historical arrangements.

Contact Richard at Gilligan Sheppard to discuss how trust structures fit within your broader planning framework. Email richard@gilshep.co.nz or call +64 21 823 464 for a confidential conversation about your specific situation.