Winding Up Your Trust
The new Trusts Act 2019 is in force which is changing the landscape of Trusts in New Zealand. You may wish to simplify your life and wind up your Trust!
Since the introduction of the new law, a trust is automatically wound up, or terminated, at the end of 135 years from the date of the trust deed (previously this time period was 80 years). However, a trust may be wound up earlier than the 135 years if the trustees agree to terminate the trust and the trust deed allows for this.
Trustees may decide to wind up the trust earlier for various reasons, including:
- the purpose of setting up the trust no longer applies, eg avoiding creditor protection no longer exists;
- the trust assets are so significant in value, that the settlor or trustees can never qualify below the threshold limits for government-funded residential care subsidiary;
- simplification of structures.
Other matters to consider:
- Trustees will continue to remain liable for the trust’s tax liabilities following the winding up of the trust. Once a trust’s assets are fully distributed the trustee’s right to indemnity from the trust assets is in effect limited as there are no assets.
- Trustees should ensure that there are good records of: distributions made, assets owned by the trust, debts which may be owed to, or by, the trustees, and trustees receiving any gifts.
- When trustees are winding up the trust and distributing assets they should also obtain tax and accounting advice to ensure that the distribution does not trigger a tax liability for the trustees.
Practical effect of winding up a trust:
- reviewing wills and relationship property agreements;
- preparation of a distribution deed or deeds;
- preparation of trustee minutes;
- dealing with any trust liabilities, including forgiving any remaining debt owed to or by the trust, discharge of mortgage;
- transferring assets to beneficiaries.
Trustees should also do the following:
- notify the trust’s bankers that the trust is wound up and close any bank accounts;
- arrange for the accountant to prepare final accounts of the trust and provide copies to the beneficiaries;
- notify the IRD that the trust is no longer trading and is wound up, file a final tax return, and obtain confirmation from the IRD that there are no outstanding tax matters;
- deregister the trust for GST (if applicable).
Winding up a trust can be relatively straightforward but strategic and practical advice is necessary. If you want to discuss whether winding up your trust works for your situation - contact firstname.lastname@example.org.