Three Notable Trends in New Zealand Domestic Trusts

In recent times, the realm of domestic trusts in New Zealand has been evolving, revealing several noteworthy trends that warrant attention.

1. Global Beneficiaries and Tax Implications
A significant trend that has emerged in the world of domestic trusts pertains to beneficiaries residing in foreign countries. These foreign locales span from Australia, the USA, and England to destinations like Spain, Italy, France, and Greece, among others. This phenomenon has raised concerns related to home-country taxation issues for beneficiaries residing abroad.

From a New Zealand perspective, there are no tax implications when making capital distributions to foreign beneficiaries. However, this could pose potential tax challenges in the beneficiary's home country. Take the example of a UK resident non-domiciled individual; income distributed to them is not taxable unless they bring it into the UK. This becomes particularly relevant if the trust distribution is intended to finance a property acquisition in the UK.

To navigate this complex landscape, it is advisable for trusts to proactively consider the residency of their beneficiaries during annual trust reviews or when preparing financial statements and tax returns. In some cases, it may be more beneficial to dissolve the trust, transferring assets back to the settlors/beneficiaries (typically parents) who are not eligible for rest-home subsidies. Acting upon these considerations pre-emptively is essential, as untangling assets post the demise of the settlors can prove challenging, depending on the countries involved.

2. Rising Incidence of Disputed Trusts and Estates
Another noticeable trend pertains to the escalating number of disputes involving trusts and estates. These disputes often necessitate the involvement of independent expert trustees and executors. Whether disputes are undergoing resolution processes, such as mediation or court proceedings, or involve executing wills due to deadlocks, they bring to light recurring themes and concerns.

One such concern revolves around estate assets when one beneficiary resides in a property that is intended to be sold and benefit all beneficiaries. Questions about rent payments, adjustments, and allocation of costs for insurance, rates, and repairs frequently arise, highlighting practical issues that stakeholders often overlook.

3. Disclosure of Information to Beneficiaries
The final trend addresses the disclosure of information to beneficiaries, an area that has gained prominence with the Trusts Act of 2019. This legislation seeks to make previously considered best practices standard for all future trusts. Central to this trend is the need for beneficiaries to understand their status as beneficiaries, enabling them to hold trustees accountable for their actions.

The Trusts Act 2019 outlines exceptions for disclosure, but they are relatively limited. In cases of uncertainty, it is expected that courts will demand trustees to disclose beneficiaries' status, provide a copy of the trust deed, and share information about the current trustees and their contact details. The extent of annual disclosures, such as trust financial statements, remains a subject for individual consideration.

In conclusion, the landscape of New Zealand domestic trusts is continually evolving, presenting both challenges and opportunities for trustees, advisors, and beneficiaries alike. While tax considerations for global beneficiaries, the proliferation of disputes, and the need for greater disclosure have come to the forefront, addressing these trends proactively and judiciously will ensure the continued efficacy and relevance of domestic trusts for small to medium business owners. Trusts must evolve with the changing times, ensuring they serve their intended purposes while remaining compliant with the evolving legal and tax landscape.