Winding up a Trust
Winding up your Family Trust.
The Family Trust is a popular legal mechanism in New Zealand. In 2019, New Zealand Trust Law went through substantial reform introducing increased obligations of trustees and rights of beneficiaries. If you feel your Family Trust may no longer be necessary or fit for its purpose, there may be savings of time or money in winding it up. However, you should take legal advice about the pros and cons of keeping the trust. The following points provide you with an overview of the steps involved to ensure your Trust is properly and legally ‘wound up’.
Steps to Wind Up a Trust
Talk to us first:
As a preliminary step, your Trust Deed should be reviewed by a legal advisor to understand any specific requirements it may have in relation to termination. This may contain guidance as to bringing forward final distribution dates or how trustees should exercise their powers including the type of beneficiary (discretionary or final) this should be in favour of.Settle any Debts and Liabilities:
Debts may be owed to or by the trustees, particularly if your Trust owns property. These outstanding debts and liabilities must be paid off before the Trust is wound up. This process may include having remaining debts forgiven or discharging any relevant mortgages.Distribute Assets:
Creating a Trust requires certainty of property. Therefore, transferring or “distributing” Trust assets to the beneficiaries is a step towards legally winding up your Trust.As part of this process, obtaining written consent from the beneficiaries regarding asset distribution and winding up may be prudent. Trustees owe a duty to hold or deal with Trust property in the best interests of the beneficiaries. Consequently, consent may act as a safeguard from any claims brought against the trustees.
Prepare Financial Statements and Complete Tax Obligations:
Winding up your Trust may require final tax returns to be filed with the Inland Revenue Department. In any event, IRD consent is required. To deregister the Trust for income tax the IRD may require additional information including final financial statements, bank statements or a distribution statement showing all assets have been distributed and no further income will be received.Record the Winding up:
The winding up of the Trust will be documented by a Resolution of Trustees. This should be prepared by your legal advisor and will require signing by the Trustees, including any corporate Trustees.
We regularly assist clients wind up their Trust and would be pleased to navigate you through the process and to ensure Trustees fulfil their obligations: Please feel free to contact:
Rosemary Springett on 04 473 9013 or email rosemarys@mmiller.co.nz
Damian Smith on 04 473 7129 or email damians@mmiller.co.nz