June 24, 2026

What You Need to Know About Family Trusts in NZ

Trusts

Understand how New Zealand’s share tax rules affect your investments, from taxable gains and share trading to tax rules for foreign shares.

A family trust is still one of the most useful structures a New Zealand family can have for estate planning, succession, and protecting hard-earned assets. The tax rules have changed recently, though, so it pays to understand the impact of the tax changes and weigh them against the benefits. This guide gives you a clear, balanced view, so yours keeps working well.

Quick Summary

A family trust remains valuable for many New Zealand families, especially for estate planning and asset protection when it’s managed well. There are compliance costs of having a trust – and asset protection that only holds up when the trust is run properly. Since 1 April 2024, trustee income has been taxed at 39%, up from 33%.
A trust generally also needs annual accounts and the trustees need to stay compliant with the duties mandated under the Trusts Act 2019. For many families, the benefits still outweigh these costs, and the answer to “are family trusts worth it NZ” comes down to your reason for holding one. Certainly the idea that everyone is winding up their trust, which is sometimes heard, is not totally accurate.

The challenges of a family trust are manageable

A trust should be seen as a form of insurance in the main. If the cost of the insurance is not outweighed by the benefits, then maybe it is not worth keeping it. The Trusts Act 2019 lifted the standard expected of trustees, and it’s applied since 30 January 2021.

The considerations most families weigh up are:

Reduced control. Once you transfer assets into a trust, the trustees own them and determine how assets are distributed. This isn’t a real problem for most family trusts, however, as the trustees are usually the ones who made the trust in the first place.
Recurring costs. Accounts, tax returns, and professional advice accumulate regardless of activity.
Compliance costs. Trustees must keep core documents and fulfil their duties under the Trusts Act.
Required disclosure. Trustees generally must tell beneficiaries about the trust and share basic information. Practically, this is usually only that the trust exists, that the individual is in fact a beneficiary, and who the trustees are.
Possibly slower decisions. Most trust deeds require unanimous trustee decisions. This can be a good thing as it usually means a professional trustee needs to agree to a significant decision before it happens (i.e. like selling a property).

None of this renders a trust pointless, but the advantages need to be more than the costs.

How a 39% trustee tax rate changes the numbers

Since 1 April 2024, the trustee tax rate has stood at 39% on income the trust retains, up from 33% and level with the top personal rate. So holding income inside a trust no longer gives the tax advantage it once did.

One useful concession applies. A trust whose trustee income is $10,000 or less is still taxed at 33%, under the de minimis rule. The threshold is strict. Reach $10,001 and the whole amount is taxed at 39%, not just the dollar over the limit.

You can still manage the trust’s tax liability by distributing income to beneficiaries, taxed at their individual rates.

Where the income sits	Tax rate from 1 April 2024
Trustee income retained in the trust	39%
Trustee income of $10,000 or less	33% (de minimis)
Income distributed to beneficiaries	Each beneficiary’s individual rate

A discretionary trust keeps genuine flexibility here, and a trust was never mainly an income tax play anyway.

A trust carries real cost and compliance to plan for

A trust often needs yearly financial statements and an IR6 tax return, plus detailed disclosures to Inland Revenue that have grown since the 2021-22 year. Those disclosures now cover full financial statements, settlements, and distributions, adding administration and accounting costs.

Many families also appoint independent trustees for stronger protection, usually money well spent. When a trust holds little beyond the family home and has no clear purpose, the load can outweigh the benefit, a good moment to review whether your trust remains fit for purpose.

Does a family trust still protect your assets?

Asset protection through a family trust is still highly effective, provided it’s set up correctly and kept genuinely separate from your affairs. The two areas families most often ask about are relationship property and residential care.

For relationship property, a trust protects best when assets go in early, and it’s run at arm’s length. If a trust is treated as a personal account, the courts can look through it, so management matters. Pairing the trust with a contracting-out agreement, or prenup, strengthens it further.

For residential care fees, the Residential Care Subsidy assessment looks at gifts made to a trust. Work and Income allows limited gifting before counting the excess as your own:

Up to $27,000 annually for gifts made more than 5 years before you apply.
Up to $8,000 annually for gifts made within 5 years of applying.

Transferring assets into a trust no longer attracts gift duty, which ended in 2011. The gifting limits still apply for subsidy purposes, so the earlier you plan, the stronger the protection. Gifting a $1,000,000 family home at $27,000 a year would take about 37 years, which is why early advice pays off. We generally wouldn’t advise forming a trust for the purposes of benefiting from the residential care subsidy like some have done in the past – we expect that benefit is likely to disappear soon.

Family trust pros and cons in NZ

A family trust has genuine strengths, so the honest picture usually lands in its favour. Weighing family trust pros and cons in NZ helps you match the structure to a clear reason.

Pros of a family trust	Cons of a family trust
Can protect assets from certain creditor claims	39% taxation on income retained in the trust (same as top personal rates though)
Preserves assets within the family across generations	Recurring expenditure, accounts, and tax returns
Supports a vulnerable family member over time	Greater compliance under the Trusts Act 2019
A strong tool for estate planning and succession	Slightly reduced control of the assets
	Possible disclosure obligations

Many trusts in New Zealand still serve a real purpose. For many Western Bay of Plenty families, the advantages prevail, whereas for others the downsides of a family trust now outweigh the benefit.

When a family trust is still worth it

A family trust is worth keeping when you hold a clear, current reason for it, and for most families, it’s still there. Before you establish a family trust, start with the purpose.

A family trust tends to prove its worth when you:

Operate a higher-risk business and want to protect personal assets from creditors.
Provide for family members with particular needs over the long term.
Hold a treasured asset, such as a farm or orchard, intended to remain in the family.
Pursue genuine estate planning objectives a Will alone can’t accomplish.

If none of these apply, that’s worth knowing too. Many people ask “is a family trust right for me”, and the honest answer is usually yes when there’s a real purpose. Understanding why you have a family trust in NZ matters more than simply having one. So if you’re wondering “should I set up a family trust”, get advice first, so it’s built to deliver.

Frequently asked questions

What are the drawbacks of a family trust?

The main drawbacks are recurring costs and compliance requirements. With good management, most families find the benefits outweigh the costs when the reason for having one is solid.

What are the new rules on family trusts in NZ?

The pivotal changes are the Trusts Act 2019 and the 39% trustee tax rate. The Act has been applied since January 2021, while the higher rate commenced on 1 April 2024.

Does a family trust protect assets from a rest home in NZ?

The answer is not always – but it still can, particularly if the trust has existed for a long time, and gifting has been done carefully over a long period. Don’t plan on forming a trust now and benefiting from this.

What is the 5-year rule for trusts?

For residential care subsidies, gifts made within 5 years of applying receive stricter treatment. You may gift up to $8,000 annually within that window, whereas older gifts permit up to $27,000 annually.

What is the 2-year rule for trusts?

No single official “2 year rule” governs family trusts. People generally mean insolvency, where gifts to a trust can be reclaimed if you’re declared bankrupt within roughly 2 years.

Do you pay tax on a trust in NZ?

Yes. Income the trust retains is taxed at 39%, or 33% where trustee income is $10,000 or less, while income distributed to beneficiaries is taxed at each individual’s rate.

A well-managed family trust is still worth it

A well-managed family trust remains a genuinely useful tool for protecting assets and passing them on. The disadvantages of a family trust are real, but they’re the running costs of a job worth doing, not reasons to avoid one. The key is a clear purpose and good management, checked against today’s rules.

Already have a family trust and want to check it’s still working for you? Or considering setting one up and want a balanced view? We’ll talk you through it in clear, easy-to-understand terms, including whether an independent trustee can help.

Book a confidential review today with no pressure and no obligation.