NEW ZEALAND Law and Practice Contributed by: Violet Yu, Jonathon Russell and Sandy Chen, Cone Marshall Limited
3. Trusts, Foundations and Similar Entities 3.1 Types of Trusts, Foundations or Similar Entities In New Zealand, trusts and similar entities are widely used for tax and estate planning to protect assets, manage succession and optimise tax outcomes. The primary types include the following. • “Discretionary” trusts – These are used to ring- fence personal assets from business risk and/or to facilitate succession and tax planning. • Funeral trusts – Prepaid trusts (up to NZD10,000) to meet funeral expenses. Due to ownership of the funds being transferred during the lifetime of the settlor, this removes the funds from the settlor’s estate at time of death. Probate of those funds is therefore not necessary, and they can be immedi - ately available for payment upon the death of the settlor. • New Zealand foreign trusts – Established by non- residents with New Zealand trustees, these are tax-exempt on foreign-sourced income, ideal for international wealth planning. • Limited partnerships – Tax-transparent entities often paired with trusts, these are used for offshore planning and recognised as separate legal entities abroad. • Charitable trusts – Established for charitable pur - poses, these are popular due to their relative ease of establishment and the benefits of charitable reg - istration (ie, status tax exemptions). Foundations are uncommon due to the lack of specific domestic legislation. • Foundations are uncommon due to the lack of specific domestic legislation. Recent Developments Affecting Benefits Recent developments include the following. • Trusts Act 2019 (effective January 2021) – This modernised trust law clarifies the duties owed by trustees to beneficiaries. The updated legislation better equips beneficiaries for holding trustees to account and empowers them to request informa - tion about the trust from the trustees.
Where property is received by gift, inheritance or trust distribution, there is no purchase price, and the cost and acquisition date used for future tax purposes are instead determined by the relevant New Zealand tax rules for that type of asset and transfer – which may, in some cases, trace back to the transferor’s original cost and acquisition date rather than the market value at the time of receipt. Specialist tax advice should be sought prior to trans - ferring assets, especially into or out of trusts and par - ticularly where depreciable assets are involved. 2.6 Transfer of Assets: Vehicle and Planning Mechanisms As New Zealand has no death taxes, estate duties or gift taxes, assets can pass tax free to the younger generation via wills, and no tax is payable on distribu - tions of capital from trusts. This has historically made discretionary trusts a useful vehicle for intergenerational wealth transfer, although the trustee tax rate has increased in recent years (meaning income retained in the trust, and not dis - tributed to beneficiaries at their applicable marginal rate, is now taxed at 39%). 2.7 Transfer of Assets: Digital Assets Digital assets are personal property and are treated as such under general property law. There is currently no specific legislation that addresses digital asset administration. To ensure smooth man - agement and transfer of assets after death, individuals should take care to: • include reference to their digital assets in their will; • provide account details, passwords or access instructions to their executor; and • consider appointing an executor who is comfort - able with technology. In the case of cryptocurrency, it is particularly impor - tant to ensure the executor has access to private keys or wallet credentials, as without them the assets may be irretrievable regardless of the terms of the will.
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