NEW ZEALAND Law and Practice Contributed by: Greg Ambler and Elizabeth Heaney, Tompkins Wake
the Court of Appeal, and overturned the High Court decision) where the court unanimously rejected the appellants’ claim that their father owed them fiduciary duties extending into their adulthood, and declined to unwind his inter vivos transfers of assets into a trust. Following the consultation made by the New Zea- land Law Commission in its 2021 Review of Succes- sion Law, it became clear that some practitioners and individuals believe the ability to divert property by transferring it to a trust to be an inalienable right, consistent with testamentary freedom and a person’s right to use legitimate estate planning methods to structure their affairs however they wish. Conversely, others believe that sufficient property should be avail- able to meet entitlements and successful claims, and the deprivation of such property from an estate (and the subsequent deprivation of satisfaction of certain claims) could result in unjust outcomes, the avoidance of obligations, and could perpetuate or exacerbate intergenerational inequities. The Commission’s review (when conceiving of a new “Inheritance Act”) concluded that the frustration of certain claims by various measures is inconsistent with the rights the new Act would provide individual claimants, and that this would justify some anti-avoid- ance measures. The report recommended, inter alia, the new legislation should enable the court to claw back assets in the event that the property had been disposed of with intent to defeat an entitlement or claim under the new legislation (based on similar pro- visions in New Zealand legislation, such as the PRA, that provide for recovery of such property). If this ground was to be substantiated, the Law Commission recommended that the court would be empowered to order that the property in question (or part thereof) be returned, subject to certain excep- tions, to the estate by the recipient, or that the recipi- ent compensate the estate in the same amount. Trusts An express trust may be created either during a per- son’s lifetime (an inter vivos trust) or under a will, in which case it takes effect only on the will maker’s death. Any person capable of owning property may establish a trust or act as a trustee. To form a valid
trust, the three certainties must be present: intention to create a trust, identifiable trust property and identifi- able beneficiaries. The Trusts Act 2019 codifies these principles by defining express trusts, outlining their core characteristics, and confirming that they must be created either under statute or by satisfying the three certainties. Discretionary trusts are used commonly in New Zea- land to establish succession plans and provide flex- ibility for settlors wishing to transfer their wealth to other beneficiaries, and retain some oversight in doing do. This is considered a conventional asset planning method in New Zealand, and with some exceptions, is not a method that is associated with the suspicion or apprehension that trustees experience in other juris- dictions. Wills Perhaps more commonly than trusts, individuals reg- ularly establish wills to effect a clear and coherent succession plan with the freedom described above, with the only limitation being a successful claim on the estate governed by the will. Wills either leave assets directly to descendants or other beneficiaries, or to trusts established during the will maker’s lifetime, or within the will itself (a testamentary trust). Executors of wills are in many instances required to obtain a grant of probate of the will to formalise their appointment and the will’s validity, which is granted by registrars of the New Zealand High Court, in most instances following a without notice civil application. 6.2 Tax and Regulatory Constraints New Zealand’s succession planning mechanisms are influenced primarily by the absence of gift duty, estate duty and most transfer taxes, making lifetime transfers and trust structures straightforward and tax efficient. Constraints instead arise from anti-avoidance rules, particularly Sections 44 and 44C of the PRA as described above, which allow clawback of transfers intended to defeat relationship property rights, and from enhanced trust disclosure obligations introduced in 2021. Limited capital gains rules (Bright line regula- tions) and the trust tax rate also affect planning strate- gies, but overall the regulatory environment remains flexible and facilitative.
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