How does a family trust work NZ? You’ve probably heard people say it’s the ultimate way to protect your assets or look after your family’s future. But let’s be honest… most explanations are packed with legal jargon that makes your head spin. So let’s keep it simple.
A family trust in New Zealand is a legal structure where you hand over assets to trustees to manage for your chosen beneficiaries. Sounds serious, right? That’s because it is. Done well, a trust can give you asset protection, help with estate planning, and even provide some tax advantages.
But before you rush into setting one up, you need to know how it works, who controls what, and the traps to avoid. This guide walks you through it step by step so you can decide if a family trust actually makes sense for you – and not just because your neighbour said it’s a “good idea.”
What is a family trust in New Zealand?
A family trust in New Zealand is a legal arrangement where a settlor transfers ownership of assets to trustees, who manage them for the benefit of beneficiaries. This setup is often used to protect assets, plan estates, and sometimes reduce tax exposure.
It sounds technical, but at its core, it’s about handing control to trustees so your assets are looked after and distributed according to your wishes.
How does a family trust work in NZ?
At a high level, a family trust works by moving ownership of assets out of your name and into the name of trustees. The trustees then hold and manage those assets for the beneficiaries.
This can be a great way to protect your wealth from creditors or relationship property claims. But it’s crucial to understand how each role works and what responsibilities come with it.
Key roles in a NZ family trust
Every family trust involves three key roles:
- Settlor – the person who sets up the trust and transfers assets into it.
- Trustees – the people (or companies) responsible for managing the trust’s assets. They’re legally bound to act in the best interests of the beneficiaries.
- Beneficiaries – the people who benefit from the trust, such as your children or partner.
Having professional trustees can reduce risk if you don’t want full responsibility. Learn more about using professional trustees.
The trust deed explained
The trust deed is the legal document that sets the rules for your trust. It details the powers of the trustees, the rights of the beneficiaries, and how assets can be managed or distributed.
Think of it as the “rulebook” for your trust. Without a clear deed, disputes can arise later.
Benefits of setting up a family trust in NZ
A family trust isn’t just for the wealthy. There are some very practical benefits if it’s set up and managed properly.
- Protect your assets from creditors and claims under the Property (Relationships) Act.
- Plan for succession so your assets pass to the right people.
- Help vulnerable beneficiaries, such as children or family members with special needs.
- Potential tax advantages, but this depends on how the trust is managed.
See our guide to setting up a family trust account for the steps involved.
What are the risks and responsibilities of a family trust?
While family trusts have advantages, they aren’t a magic fix. If not managed properly, they can create more problems than they solve.
- Loss of control – once assets are in the trust, they no longer legally belong to you.
- Ongoing costs – setting up and maintaining a trust can be expensive.
- Trustee obligations – trustees must follow strict legal duties or risk penalties.
List of common mistakes to avoid:
- Treating trust assets like your own (breach of trust).
- Failing to file annual accounts or meet IRD requirements.
- Not reviewing your trust deed regularly.
For more information: Check this article on Sorted.org.nz on family trusts.
If you’re thinking of closing an existing trust, check our guide on costs of winding up a trust.
How to set up a family trust in NZ
Setting up a trust requires careful planning. Here’s what the process usually looks like:
Legal steps for creating a trust
- Decide why you want a trust and if it suits your situation.
- Choose your trustees wisely (consider using professionals).
- Draft the trust deed with a lawyer.
- Transfer ownership of assets to the trust.
Costs involved in setting up a trust
| Expense | Approximate cost (NZD) |
|---|---|
| Lawyer fees for trust deed | $2,000 – $4,000 |
| Independent trustee annual fee | $1,000 – $3,000 |
| Annual administration (accounting) | $500 – $2,000 |
These costs vary depending on complexity and professional advice.
If you plan to keep your trust dormant, learn about non-active trusts tax rules.
Conclusion
A family trust in New Zealand can be a powerful way to protect your assets, plan for your family’s future, and make sure everything ends up in the right hands. But here’s the truth – a trust isn’t for everyone. Set it up wrong or leave it unmanaged, and it can turn into an expensive mess.
Before you dive in, ask yourself why you need it. Are you protecting your home? Planning for your kids? Or just copying what others are doing? Be clear on your goals and get advice from a lawyer or accountant who understands how trusts really work.
Don’t leave it to chance. Done right, a trust gives you peace of mind and keeps your legacy safe. Done wrong, it’s stress you don’t need.
Need help finding the right professional? BH Accounting can point you in the right direction.
FAQ about how does a family trust work NZ
Do family trusts pay tax in New Zealand?
Yes. Trust income is generally taxed at 33%, but distributions to beneficiaries may be taxed differently.
Can you dissolve a family trust in NZ?
Yes, but it usually requires agreement from trustees and beneficiaries and may involve legal costs.
Are family trusts still worth it in 2025?
For some people, yes – especially for asset protection and estate planning. But they’re not suitable for everyone.
Who owns the assets in a family trust?
The trustees hold ownership legally but manage the assets for the benefit of the beneficiaries.