FAMILY TRUST ACCOUNTING – WHAT DO I NEED TO DO?

Family trust accounting – what do I need to do? This could quite possibly be a question which you have never thought much about before. But given the trust tax law changes of recent years, it may now be on your radar. (In fact, in 2026 it should be on your radar!)

30-SECOND OVERVIEW

Family trusts are under more scrutiny than ever — from courts, IRD, and increasingly beneficiaries themselves. Since the Trusts Act 2019 came into force, trustees have had legally enforceable mandatory duties, including keeping proper records and, in many cases, telling beneficiaries basic information about the trust. On top of that, since the 2021–22 income year, IRD requires most trusts filing a tax return to prepare financial statements to a minimum standard and disclose extra information with their return. This includes precise figures for settlements, distributions, and details of settlors and beneficiaries. Treating trust assets like personal property, skipping annual accounts, or ignoring these disclosure rules is no longer just risky practice. Rather, it can mean a trustee is in breach of the law, and in the worst cases, can be a factor in a trust being successfully challenged or unwound.

Bottom line: manage the trust properly, keep good records, get annual accounts done, and get professional advice — especially if your trust deed predates 2021.

WHY THIS MATTERS

There are whole teams of lawyers who specialise in unwinding trusts. IRD, the Ministry of Social Development, WINZ, and creditors may all, in the right circumstances, try to show that a trust is really just a front — that assets are being held “as if they are the settlor’s own personal property,” which undermines the whole basis for the trust existing.

How do you protect against this? By managing the trust properly and being able to show, on paper, that it’s being run as a genuine trust — not as an alter ego for personal assets.

WHAT THE TRUSTS ACT 2019 REQUIRES

The Trusts Act 2019 came into force on 30 January 2021 and was the first major overhaul of New Zealand trust law in over 60 years. It applies to all trusts — including ones set up long before 2021 — and for the first time puts trustee duties into legislation rather than leaving them to case law.

Key points for trustees:

• Mandatory duties — these cannot be excluded by the trust deed, no matter what it says. They include knowing the terms of the trust deed, acting honestly and in good faith, acting for the benefit of beneficiaries (or the trust’s purpose), and exercising reasonable care and skill.
• Default duties — these apply unless the trust deed specifically modifies or excludes them, and cover things like investing prudently and acting unanimously with co-trustees.
• Record-keeping is now a legal obligation, not just good practice. Trustees must keep “core trust documents” — the trust deed and any variations, records of trust property (assets, liabilities, income and expenses), and records of trustees’ decisions — for the life of the trust.
• Beneficiaries have stronger rights to information. Trustees must consider, at reasonable intervals, whether to proactively give beneficiaries “basic trust information” (e.g. that they are a beneficiary, and who the trustees are), and there’s a presumption trustees must provide further trust information if a beneficiary asks for it.

If your trust deed was signed before 30 January 2021, it’s worth having it reviewed against the new Act — many older deeds don’t reflect these requirements well.

WHAT IRD NOW REQUIRES

Separately from trust law, IRD tightened its own reporting rules from the 2021–22 income year onward. If your trust is required to file an income tax return, in most cases you’ll now also need to:

• Prepare a statement of financial position and a statement of profit or loss to a minimum standard set by the Tax Administration (Financial Statements—Domestic Trusts) Order 2022 — even if the trust doesn’t currently prepare full annual accounts.
• Disclose to IRD (generally via the trust’s IR6 return) information including: settlements made on the trust, distributions to beneficiaries, and identifying details of settlors, beneficiaries who received distributions, and anyone with the power to appoint or remove a trustee.
• Trusts with less than $100,000 of assessable income and less than $100,000 of deductible expenditure may qualify for simplified reporting, which reduces (but doesn’t remove) these obligations.
• Foreign trusts, charitable trusts, Māori authorities, bare trusts, and trusts with approved “inactive” status are generally exempt from the additional disclosure rules.

In short: “we only own the family home so we don’t need accounts” is no longer a safe assumption — many trusts now have a statutory obligation to prepare financial statements regardless of whether they earn income.

WORKED EXAMPLE

A Year in the Life of a “Simple” Family Trust

To make this concrete, here’s how it looks for a typical trust that owns the family home and has no rental income.

The scenario: The Smith Family Trust owns the family home, which the settlors (Mr and Mrs Smith) sold to the trust some years ago. They still live in the house. The trust has no income of its own — the Smiths continue to pay the mortgage and cover any repairs personally, and gift down the loan each year.

Statement of Financial Position — as at 31 March

	Amount
Assets
Family home (at cost)	$850,000
Total assets	$850,000
Liabilities
Loan owing to settlors	$210,000
Total liabilities	$210,000
Net assets (equity)	$640,000

Movement in the Settlor Loan Account for the Year

	Amount
Opening balance (1 April)	$225,000
Add: Advances during the year*	$15,000
Less: Amount gifted during the year^	($30,000)
Closing balance (31 March)	$210,000

* (mortgage payments, insurance, repairs paid by settlors on the trust’s behalf) ^(per Deed of Forgiveness of Debt)

In practice, this loan account is usually the single most important number in a no-income trust’s accounts. It’s the running record of exactly how much the trust still owes the settlors — and it’s what proves, on paper, that the trust is being treated as a genuine, separate legal owner of the house rather than as the settlors’ own pocket.

What This Means on the IR6 (Trust Tax Return)

Even a simple trust like this generally needs to disclose, alongside its return:

• Settlements made on the trust during the year — in this case, the $15,000 of advances (mortgage payments, repairs, insurance) the settlors funded on the trust’s behalf count as settlements, along with identifying details of the settlors.
• Distributions to beneficiaries — none, in this example, since the trust isn’t earning income to distribute. (If the trust had rental income and paid out beneficiary distributions, those would need to be itemised with beneficiary details too.)
• Details of the settlors, and anyone with power to appoint or remove a trustee — this identifying information generally needs to be disclosed even where the underlying figures are small.

Note that this trust would likely qualify for simplified reporting, since it’s well under the $100,000 assessable income / $100,000 deductible expenditure thresholds — but simplified reporting reduces the compliance burden, it doesn’t remove it. A statement of financial position and the loan account movement above still need to be prepared and kept on file.

This example is illustrative only — the correct treatment for your trust depends on your deed, your settlement history, and your personal circumstances. Speak to us before applying this to your own accounts.

PRACTICAL STEPS TO MANAGE YOUR TRUST WELL

• Involve all trustees in decisions, and keep minutes of trustee meetings.
• Don’t treat trust assets as your own — pay trust bills from a trust bank account, and don’t mix personal and trust assets.
• Have annual financial statements prepared, even if the trust has no income — this may now be a legal requirement, not just best practice.
• Insure trust assets (e.g. a house the trust owns).
• Keep good records of trust property and trustee decisions — this is now a mandatory duty under the Trusts Act 2019.
• Consider whether your trust deed needs updating for the current law, and whether a professional trustee is appropriate.

WHAT IF WE HAVEN’T DONE ANY OF THIS?

It’s tempting to just carry on from here, but that’s risky. Trustee duties under the Trusts Act 2019 apply regardless of when the trust was set up, and courts have shown limited tolerance for trustees who haven’t met their obligations. If your trust hasn’t had financial statements prepared, or your deed hasn’t been reviewed since before 2021, the sensible move is to get this sorted now rather than wait for it to become a problem — whether that’s a challenge from IRD, a family dispute, or a beneficiary asking questions you can’t answer.

KEY TAKEAWAYS

• The Trusts Act 2019 applies to your trust even if it was set up decades ago — mandatory duties (like proper record-keeping) can’t be excluded by the trust deed.
• Since the 2021–22 income year, most trusts filing a tax return must prepare financial statements to a minimum IRD standard and disclose settlor, beneficiary, and distribution details.
• “The trust only owns the family home” is not a reason to skip annual accounts — many trusts are legally required to prepare them regardless of income.
• If your trust deed predates 30 January 2021, get it reviewed against the current Act.
• Get a good accountant experienced in trust accounting, and speak to your lawyer about whether your trust deed and practices are up to date.

NEXT STEPS

Get in touch and we can review your trust’s accounting and disclosure obligations, and help bring things up to date if needed. Contact us or call 0800-890-132. Particularly if you are going to move to Australia

This article provides general information only and is not legal advice. For advice specific to your trust and circumstances, please consult a lawyer and your accountant.

Further Reading

• FAMILY TRUSTS: BASIC CONCEPTS
• COMMON MISCONCEPTIONS ABOUT FAMILY TRUSTS
• RESIDENTIAL CARE SUBSIDY AND GIFTING
• TRUST LAW CHANGES
• WHAT TRUST TAX CHAMGES MEAN FOR MY FAMILY TRUST