October 22, 2026

Why have a family trust in NZ: the real reasons people set one up

NewsTrusts

A family trust in NZ makes sense if you need asset protection, whether from a business or relationship perspective. It’s essential for good succession planning to avoid potential family disputes and, in some cases, for legitimate income splitting.

Maybe you’ve read about the downsides of a family trust and want the honest case for it. So, you may find yourself asking, “Why have a family trust?” NZ families who set one up usually have something specific to protect: a business, a rental, the family home or a child’s inheritance.

Quick summary

Some Kiwis set up a family trust to protect assets and pass wealth to future generations. The trust passes on personal assets to trustees who hold them for your beneficiaries under a trust deed. The Trusts Act 2019 sets the rules and guidelines, and income kept in the trust is taxed at 39%, unless trustee income is $10,000 or less, in which case the whole amount is taxed at 33%.. As such, a trust suits people with real assets and real risks, such as business owners and property investors. If your main asset is a mortgaged home and your work carries little risk, a well-drafted Will suffices.

What is a family trust? NZ law in plain terms

A family trust is a legal relationship where trustees own and manage assets for chosen family members. Under New Zealand law, the Trusts Act 2019 has governed every express trust since 30 January 2021.
Three roles make the trust structure work:

The Settlor. Responsible for creating the trust and transferring assets into it.
The Trustees. They hold legal ownership and are responsible for handling asset management as indicated in the trust deed.
The Beneficiaries. The people the trust is for, usually you, your partner, and your children.

The whole point of a family trust under NZ law is to separate who owns an asset from who benefits from it. That split is the core family trust meaning. There are several types of trusts, but most family trusts are discretionary trusts, where trustees decide who receives what and when.

Trusts in New Zealand are quite common. In fact, Inland Revenue recorded about 170,000 trusts subject to disclosure in the 2022 tax year.

Why have a family trust? NZ reasons that still hold up

The main advantages of a family trust NZ advisers point to are protection and succession. However, take note that everything a trust offers still has limits.

Reason	Who it helps most	What to know
Protect assets from creditors	Business owners with personal guarantees	Transfers that defeat creditors can be reversed
Shield inheritances	Parents passing wealth to adult children	Courts can still reach trust assets in some cases
Keep family assets together	Owners of an orchard, farm or business	Trustees can hold assets for up to 125 years
Support a vulnerable family member	Families caring for someone with a disability	Trustees control how and when money is paid
Spread trust income	Families with adult beneficiaries on lower rates	Tax rules tightened in 2024

The reasons for having a trust vary by case and can play out differently in practice, depending on when and how you set one up. Here’s how these reasons may play out among families from Katikati to Te Puke:

Asset protection. Assets held by trustees aren’t yours, so a failed venture can’t easily reach them. That’s one of the clearest benefits of a family trust. NZ business owners often sign personal guarantees, like a Katikati builder with supplier accounts. A trust can protect assets like the family home from that risk, if it’s set up before trouble starts.
Relationship property claims. Parents often use a trust so a child keeps an inheritance if their relationship ends. It isn’t watertight. In Clayton v Clayton, the Supreme Court treated a husband’s powers over his trust as relationship property.
Succession and estate planning. A Te Puke kiwifruit orchard can pass to the next generation intact, rather than sold to split an estate.
Support for a vulnerable family member. Trustees can pay for care, housing or study as needs change, instead of handing over a lump sum.
Income splitting. Income paid to an adult beneficiary attracts income tax at their own rate, which might be 10.5%, 17.5%, or 30%. Our guide to family trust tax rates explains each tax rate.

These are the family trust benefits NZ law still supports, but each depends on how well the trust is run.

Family trust vs Will: NZ rules on what each does

A Will decides what happens to the assets you own personally when you die. A trust holds assets so they’re never part of your estate, and most people with a trust still need both.

	Will	Family trust
When it works	Only after you die	From the day assets are transferred
Protects assets while you’re alive	No	Yes, within limits
Goes through probate	Yes, for estates over $40,000*	No
Can family challenge it?	Yes, under the Family Protection Act 1955	Much harder

*The probate row is worth a closer look. On 24 September 2025, the probate threshold rose from $15,000 to $40,000, so smaller estates can often be settled without it. Assets held in a trust skip probate, whatever their value. For the full picture, including enduring powers of attorney, see our estate planning guide.

Who should have a family trust? NZ situations where it fits

A trust fits when you have meaningful assets and a specific risk to manage. Those are the real reasons to have a family trust. NZ trusts set up without them often cost more to run than they protect.

It’s worth considering if you:

Run a business, or sit on a board, with personal liability
Own a Mount Maunganui rental alongside the family home
Are entering a new relationship, or have a blended family
Want to keep a farm, orchard or business together after you’ve gone
Care for a family member who’ll need long-term support

But will you need a family trust eventually? NZ guidance says probably not if your assets are modest and your work is low risk.

Setting up a family trust the right way

Establishing a family trust starts with legal advice and a trust deed. Since gift duty was repealed in October 2011, you can move assets into a trust in one step.

Setting up a trust well takes a few habits:

Appoint an independent trustee or professional trustee
Keep separate bank accounts and annual accounts
Write a memorandum of wishes for trustees
Review the trust every few years, or after a major life change

If you treat trust assets as your own, a court can set the trust aside as a sham. Our article on hiring professional trustee services explains how a professional trustee helps you set up and manage the trust.

Frequently asked questions

Why would you set up a family trust?

You’d set one up to protect assets from future risks and pass them to family on your terms.

What is the purpose of the family trust?

Its purpose is to separate who owns assets from who benefits from them. That’s what gives a trust its protection.

What are the benefits of putting a house in a family trust?

The benefits of placing a house in a family trust include protection from personal creditors and a better handover to children. A house may be outside the scope of the estate, avoiding probate. As a rule of thumb, be sure to check any lending, insurance, and tax issues first.

Can my spouse get half of my trust?

It is possible, but most likely only indirectly, since trust assets belong to the trustees. However, a court can order compensation under section 44C of the Property (Relationships) Act 1976. It applies when relationship property becomes part of a trust and defeats a partner’s claim.

What is the best way to leave your assets to your children?

For most families, an up-to-date Will is the starting point. A trust adds protection when a child faces relationship, creditor, or money-management risks.

Get a balanced view before you decide

Why have a family trust? NZ families get the most from one when it’s matched to a real risk and reviewed as life changes. If your current trust no longer earns its keep, dissolving a family trust is an option.

Our team works with private clients and family trusts from Katikati to Te Puke.

If you’re weighing up whether a family trust is right for your family, we’re here to give you a balanced view. We’ll walk you through on what it does, what it costs, and whether it actually suits your situation.

Schedule a free chat. No pressure from us – just a chance to talk things through.