NEW ZEALAND Law and Practice Contributed by: Greg Ambler and Elizabeth Heaney, Tompkins Wake
A professional trustee, who is paid to act as a trustee, is expected to exercise a higher standard of diligence and knowledge than an unpaid trustee, while a profes- sional corporate trustee is expected to use the special skill and care which it professed itself to have in its advertising and marketing literature and other deal- ings with the settlor of the trust. This is a default duty under the Trusts Act, and may be modified in the trust deed to provide for a different standard. New Zealand allows families, advisers or corporate service providers to establish private trustee compa- nies, often used to act as the sole trustee of a trust. These are typically ordinary limited liability companies created for the sole purpose of acting as trustee. Such companies offer structural benefits such as lim- ited liability, continuity and simpler transfer of assets and control. 10.2 Taxation of Trusts For tax purposes, New Zealand classifies trusts into four types: • complying trusts; • non-complying trusts; • foreign trusts; and • charitable trusts The main difference between these categories is how trust distributions are taxed. Income earned by trus- tees is taxed either as beneficiary income or trustee income. Beneficiary income is income that vests in, or is paid to, a beneficiary during the year (or within 6–15 months after year end). Trustee income is simply income that is not beneficiary income. A complying trust is one that, throughout its life, has met all New Zealand tax obligations and has not earned certain types of foreign-sourced or exempt income. A New Zealand foreign trust exists when no settlor has been a New Zealand tax resident since the trust was first settled. If a settlor later becomes New Zealand resident or a New Zealand resident makes a settle- ment on the trust, it stops being a foreign trust. For-
eign trusts must also meet specific record-keeping and disclosure requirements. Trustee income is generally taxed at a flat rate of 39% (increased from 33% in April 2024), while beneficiary income is taxed at the beneficiary’s own tax rate, sub- ject to source of income rules. Complying trusts are not taxed on most other distributions, but non-com- plying and foreign trusts may face extra tax depending on the type of distribution and where the income or beneficiaries are located. Special rules also apply to beneficiary income for children under 16. When trus- tees allocate income to beneficiaries, they can credit it to a beneficiary current account instead of paying it out. 11. Planning for Non-Traditional Families 11.1 Succession Rights and Estate Taxes for Non-Traditional Families Modern Relationship Classifications The Marriage (Definition of Marriage) Amendment Act 2013 changed New Zealand law so that marriage is defined as the union of two people, regardless of sex, sexual orientation or gender identity. Terms like “hus- band” and “wife” in legislation are now replaced with “spouse”. A civil union partner is someone in a legally regis- tered civil union. Any two people aged 16 or over (with guardian consent if 16–17), who are not closely related and not already married or in a civil union, may enter a civil union. New Zealand also recognises certain overseas relationships that are treated as civil unions. A de facto partner is someone in a relationship (same sex or opposite sex) where both people are 18 or older, live together as a couple, and are not married or in a civil union. Whether two people live together as a couple depends on factors such as how long they have lived together, their financial arrangements, property ownership, commitment to a shared life, care of children and how they present publicly.
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