WHAT TRUST TAX CHANGES MEAN FOR MY FAMILY

What trust tax changes mean for my family: Is that something you have been wondering about? Lately, I’ve been hearing a lot about rising taxes on trusts and the growing wealth gap between generations. Like many families, we’ve worked hard to build up some assets — a home, maybe a rental or two, a business — and we’ve set up a trust to protect what we’ve earned.

But now I’m thinking: Is our trust still the best option? Are we doing the right thing for our kids? What do these tax changes mean for my family’s future?

If you’re asking yourself the same questions, you’re not alone. This guide will help you understand what’s going on, what’s changed, and how the right accountant (working in with a good lawyer) can help you make smart decisions about your wealth, your trust, and your long-term plans.

What’s Happening With Trusts in New Zealand?

A Major Tax Change You Should Know About

From 1 April 2024, the tax rate on trust income over $10,000 has jumped from 33% to 39%. This means that if your trust earns income — from property, investments, or a business — and keeps it in the trust, you’re now paying a lot more tax.

In the past, trusts were a common way to protect family wealth and reduce tax, especially by spreading income to family members on lower tax rates. But now, holding income in a trust might actually cost more than it’s worth.

More Reporting, More Responsibility

It’s not just about the higher tax. Trusts now have to meet much stricter reporting and disclosure rules. You need to keep clear records of:

• Who the beneficiaries are
• How much income was earned
• What was distributed (and to whom)
• What assets are in the trust

It’s more admin, more paperwork, and more risk if anything’s missed. If you’re a trustee (or thinking about becoming one), this is something you need to take seriously.

Is a Trust Still Right for My Family?

That depends on your situation. Trusts are still useful for many reasons:

• Protecting assets from future claims or relationship breakups
• Keeping control over how wealth is used or passed down
• Supporting vulnerable family members or those overseas
• Privacy, as trusts don’t go through probate when someone dies

But with the new tax rate and higher compliance burden, your trust may now be costing more than it’s saving — especially if it’s a smaller trust or no longer serving its original purpose.

What Should I Do About It?

If you already have a trust (or are thinking about setting one up), now’s the time to sit down with an accountant or your lawyer and ask some key questions:

• Should I still be keeping income in the trust, or is it better to distribute it?
• Are we meeting all the new reporting rules?
• Is the trust structure still the best fit for our family goals?
• What are the tax implications for the next generation?

An experienced accountant can help you go through your trust, line by line, and figure out whether it’s still working for you — or if it’s time to make some changes.

What About Passing Wealth to Our Kids?

You’ve probably heard about the “great wealth handover” — the estimated $1 trillion that will pass from older to younger generations in New Zealand over the next 20 years. That might include:

• Inheritances
• Gifting while you’re still alive
• Helping with home deposits (“Bank of Mum and Dad”)
• Distributions from trusts

We want to support our children. But if that support isn’t carefully planned, it can create tax issues, legal risks, or even tension between family members.

Your lawyer can help you structure things properly — like deciding whether to give a cash gift or set up a formal loan agreement, or how to treat your adult children fairly in your will or trust deed.

Real Talk: What Happens If We Get This Wrong?

Without a plan, things can get messy:

• Your trust could pay thousands more in tax each year
• You could accidentally breach reporting rules and face penalties
• Family members might argue over how the estate is divided
• Younger family members may miss out on support because you were unsure how to structure it

A good investment accountant and a skilled lawyer can help you avoid these pitfalls — and give you confidence that your legacy will be passed on in the way you intend.

Case Study: When Distributing Makes More Sense

Let’s say you have a family trust earning $50,000 in rental income each year. In the past, you might have kept that income in the trust and paid 33% tax ($16,500).

Now, with the new 39% rate, that’s $19,500 in tax — nearly $3,000 more.

But if your accountant suggests distributing the income to your two adult children — one on a 17.5% tax rate and one on a 30% rate — your overall tax bill could drop significantly.

The key is making sure those distributions are planned, documented, and tax-efficient. That’s where professional advice makes all the difference.

What About Families Without a Lot of Wealth?

Even if you don’t have millions in property or a big investment portfolio, these changes still matter.

• If you’re helping your kids into their first home, you’ll want to know how to do that safely
• If you’ve got a modest family trust, it may not be worth the cost anymore
• If you’re approaching retirement, you’ll want to know how your assets will be taxed and transferred

An decent property accountant can help any family understand what their options are — and make the best decision for their specific circumstances.

How Can an Accountant Help Me?

Here’s what an accountant can do for you right now:

• Review your trust and explain how the new tax rate affects you
• Help you decide whether to keep your trust or wind it up (you would also need legal advice)
• Make sure your trust is compliant with the latest reporting rules
• Plan how to reduce tax on trust income

If you haven’t talked to your accountant about this recently, now’s the time.

5 Questions to Ask at Your Next Accounting Meeting

1. Are we paying more tax than we need to through our trust?
2. Should we distribute trust income to beneficiaries this year?
3. Are we complying with all the new IRD reporting rules?
4. Should we consider gifting now rather than waiting until later? (actually, ask your lawyer about that)
5. Is our trust structure still fit for purpose?

Final Thoughts: Planning Ahead Brings Peace of Mind

Navigating trusts, taxes, and intergenerational planning can feel overwhelming — but it doesn’t have to be. With the right accountant by your side, you can simplify complex issues, reduce your tax exposure, and create a plan that works for your whole family.

Whether you’re starting to build your wealth or thinking about how to pass it on, there’s never been a better time to get advice that’s tailored to you.

Need help reviewing your trust or planning for the future?
Get in touch with our team today — we’re here to guide you every step of the way. Well, not every step. You need to chat to your lawyer too. But most of the steps. Call us now: 099730706 ext 2.