DO FAMILY TRUSTS NEED FINANCIAL STATEMENTS IN NZ?

Do Family Trusts Need Financial Statements in NZ? In many cases, yes. Before we delve into why, here is an overview:

30-Second Summary

 The days when a family trust could simply own a house and keep minimal records have largely passed. The Trusts Act 2019 increased trustee responsibilities, while Inland Revenue now (in 2026) requires most trusts that file tax returns to provide additional financial information and disclosures. Even where a trust owns only the family home and earns no income, financial statements often help trustees meet their legal obligations, track loans and gifting, and demonstrate proper trust administration. If your trust files an IR6 return, you should review the minimum reporting requirements carefully. If your trust has “inactive” status, different rules may apply.

 

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Do Family Trusts Need Financial Statements in NZ?

One of the most common questions we hear is:

“Our family trust only owns the house. Do we really need financial statements?”

Lawyers and accountants sometimes answer this question differently. Some lawyers focus on whether trust law specifically requires annual financial statements in every situation. Some accountants focus on what trustees need in order to properly administer a trust and satisfy Inland Revenue requirements. The reality sits somewhere in the middle.

When clients ask us “Do Family Trusts Need Financial Statements in NZ?” our answer usually starts with another question:

What does the trust own, what activities does it undertake, and what reporting obligations apply?

The answer varies from trust to trust. However, recent changes to trust reporting requirements have made annual financial statements considerably more important than they were a decade ago. For a broader discussion about trustee responsibilities, read our article: Family Trust Accounting – What Do I Need To Do?

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Why Financial Statements Matter for Family Trusts

Trustees must manage trust assets for the benefit of beneficiaries.

To do that effectively, trustees need to know:

• What assets the trust owns
• What liabilities the trust owes
• How much income the trust earned
• What expenses the trust incurred
• Whether distributions occurred
• Whether loans remain outstanding

Without reliable financial records, trustees often struggle to answer these questions. Financial statements create a structured snapshot of the trust’s financial position. They help trustees make informed decisions and maintain evidence that they have administered the trust properly.

This becomes particularly important if:

• Inland Revenue reviews the trust
• A beneficiary requests information
• A family dispute arises
• Creditors challenge the trust structure
• Trustees change

Good record keeping protects trustees. Poor record keeping rarely ends well.

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IRD Disclosure Requirements Have Changed the Landscape

Historically, some small family trusts prepared little more than a balance sheet. Those days have largely disappeared. In recent years, Inland Revenue introduced expanded disclosure requirements for many trusts that file income tax returns.

These disclosure rules seek to improve transparency around:

• Settlors
• Beneficiaries
• Distributions
• Settlements
• Related party transactions

The information helps Inland Revenue understand how trusts operate and identify situations where income may move between taxpayers. Many trustees remain unaware of these obligations. They assume that because the trust produces little income, the reporting requirements remain minimal. Unfortunately, that assumption can cause problems. Even relatively simple trusts may need to disclose significantly more information than they did previously. That is one reason why well-prepared financial statements have become increasingly important.

For further guidance (again) see Family Trust Accounting – What Do I Need To Do?.

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What if the Trust Owns Only the Family Home?

This situation causes more confusion than almost any other trust issue.

The conversation often goes like this:

“Our trust has no rental income.”

“It doesn’t run a business.”

“It only owns the family home.”

Many people assume that no income means no need for accounts. However, family-home trusts still create financial relationships that trustees should track.

For example, the trust may owe money to the settlors because:

• The house originally transferred into the trust
• A loan funded the acquisition
• The settlors paid rates
• The settlors paid insurance
• The settlors paid maintenance costs
• The settlors funded improvements

Every one of these transactions can affect the trust’s financial position.

Without financial statements, trustees often lose track of:

• Loan balances
• Gifting history
• Equity
• Trust liabilities

Over time, the records become increasingly difficult to reconstruct.

That can create difficulties years later when:

• The property sells
• Estate planning occurs
• New trustees take over
• Beneficiaries ask questions

The fact that a trust owns only a family home does not automatically eliminate the need for financial statements.

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Tracking Loans and Gifting

Many New Zealand family trusts owe substantial amounts to their settlors. This often arises when the settlor transfers a house into the trust and leaves the purchase price outstanding as a loan.

Years later, trustees may struggle to determine:

• How much remains owing
• What gifting occurred
• Whether documentation exists
• Whether balances remain accurate

Financial statements help trustees maintain this information.

They create an ongoing record showing:

• Opening loan balances
• New advances
• Debt forgiveness
• Closing balances

Without proper accounts, trustees risk making decisions based on incomplete information. That risk increases as trusts age.

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Minimum Accounting Requirements for Trusts

Another common question is:

“What are the minimum accounting requirements for a trust?”

The answer depends on the trust’s circumstances.

However, trustees should generally maintain sufficient records to identify:

Assets

Examples include:

• Family homes
• Rental properties
• Investments
• Bank accounts

Liabilities

Examples include:

• Mortgages
• Settlor loans
• Other creditor balances

Income

Examples include:

• Rent
• Interest
• Dividends

Expenses

Examples include:

• Rates
• Insurance
• Accounting fees
• Mortgage interest

Equity and Beneficiary Interests

Trustees should also understand how trust equity and beneficiary balances have changed over time. A trust cannot manage its affairs properly if nobody knows its financial position.

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What Are Simplified Reporting Thresholds?

Not every trust faces the same compliance burden. Some smaller trusts qualify for simplified reporting concessions. Generally speaking, Inland Revenue recognises that small trusts with low levels of activity should not face the same compliance burden as complex investment structures.

However, trustees should not assume simplified reporting means:

• No records
• No accounting
• No compliance obligations

Simplified reporting reduces complexity. It does not eliminate trustee responsibilities. Many trustees misunderstand this distinction. Even where simplified reporting applies, trustees should maintain sufficient financial records to support the information reported to Inland Revenue. Good accounting remains important.

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What Is an Inactive Trust?

Some trusts have genuinely become inactive.

For example:

• The trust may own no assets.
• The trust may receive no income.
• The trust may undertake no transactions.

In limited circumstances, trustees may apply for inactive status. An inactive trust differs significantly from a trust that simply earns no income. This distinction matters. A family-home trust that continues to own valuable assets rarely fits most people’s understanding of an inactive trust.

Similarly, a trust that continues to receive advances, incur expenses, or make distributions generally remains active. Trustees should seek professional advice before assuming inactive status applies. Many people mistakenly classify a trust as inactive simply because it has little activity. That assumption can lead to compliance problems.

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Common Accountant vs Lawyer Disagreements

This topic generates some fascinating conversations. Lawyers and accountants often approach trusts from different perspectives. That does not mean either profession is wrong. It simply reflects different areas of focus.

The Lawyer’s Perspective

Lawyers often focus on:

• Trust validity
• Trustee duties
• Beneficiary rights
• Asset protection
• Legal compliance

A lawyer might ask:

“Does trust law specifically require annual financial statements in this situation?”

That is a perfectly reasonable question.

The Accountant’s Perspective

Accountants often focus on:

• Record keeping
• Financial reporting
• Tax compliance
• Inland Revenue requirements
• Evidence of proper administration

An accountant might ask:

“How can trustees properly track loans, assets, liabilities and obligations without accounts?”

That is also a reasonable question.

Where the Differences Arise

The disagreement often stems from the phrase:

“Need financial statements.”

A lawyer may interpret that as a legal requirement. An accountant may interpret it as good governance and practical necessity. Both viewpoints have merit. In our experience, trustees usually benefit from maintaining proper financial statements even where the legal requirement appears less obvious. The cost of preparing accounts often proves far smaller than the cost of reconstructing years of missing records.

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Why Family-Home Trusts Often Create Problems

Some of the most problematic trust files we encounter involve trusts that own only the family home. That surprises many people. After all, they often appear simple. Yet these trusts frequently accumulate years of undocumented transactions.

Examples include:

• Improvements paid personally
• Rates paid personally
• Insurance paid personally
• Mortgage payments made outside the trust
• Informal gifting arrangements

Nobody tracks these transactions properly. Then a major life event occurs.

Perhaps:

• The property sells.
• A spouse dies.
• Beneficiaries become involved.
• Trustees change.

Suddenly everyone wants answers. Without financial statements, finding those answers becomes significantly harder.

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Financial Statements Help Demonstrate Proper Trust Administration

Trustees must show they have actively managed the trust. Financial statements help provide evidence of that management.

They demonstrate that trustees understand:

• What the trust owns
• What the trust owes
• What transactions occurred
• How the trust’s position changed over time

This does not guarantee protection from every future dispute. However, proper accounting records generally place trustees in a much stronger position than incomplete records. Good trust administration often starts with good record keeping.

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When Should Trustees Seek Advice?

Trustees should consider professional advice if:

• The trust owns property.
• The trust files tax returns.
• The trust makes distributions.
• The trust has significant loans.
• The trust deed predates recent law changes.
• The trust has not prepared accounts for several years.

Small issues often become larger and more expensive when trustees ignore them. An annual review costs far less than reconstructing a decade of missing information.

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Conclusion: Do Family Trusts Need Financial Statements in NZ?

The simple answer is:

Many do, and many more should.

The question “Do Family Trusts Need Financial Statements in NZ?” no longer carries the straightforward answer it once did. Why? IRD disclosure requirements have increased significantly. Trustees face greater obligations. Beneficiaries have stronger rights. Record keeping matters more than ever.

Even trusts that own only the family home often benefit from annual financial statements because those accounts help trustees:

• Track loans
• Record gifting
• Monitor trust assets
• Demonstrate proper administration
• Support Inland Revenue reporting

Inactive trusts may face different requirements, but trustees should confirm their status before assuming exemptions apply.

Key Takeaways

✅ Many family trusts now face increased reporting and disclosure requirements.

✅ Trusts that own only the family home often still benefit from annual financial statements.

✅ Financial statements help track loans, gifting, assets and liabilities.

✅ Simplified reporting does not mean no reporting.

✅ Inactive trusts differ from low-activity trusts.

✅ Lawyers and accountants often focus on different aspects of trust administration.

✅ Good records help protect trustees and support proper decision making.

Need Help With Trust Accounting?

If your family trust owns property, files tax returns, or has not prepared financial statements recently, now is a good time to review its compliance position. At EpsomTax.com, we help trustees understand their obligations, prepare trust financial statements, meet Inland Revenue disclosure requirements, and maintain proper trust records.

Start by reading our detailed guide:

👉 Family Trust Accounting – What Do I Need To Do?

Or contact EpsomTax.com today for practical, plain-English advice on trust accounting and trust compliance. A small review today could prevent a much larger problem tomorrow.