Winding up your Trust - Before you pull the trigger, seek expert legal advice to make the right decision

Thinking of winding up your Trust? Hold up!

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Winding up your Trust

  • Before you do anything rash, let's get one thing straight: the rumors you've heard about the Trusts Act 2019 are as reliable as your grandpa's old rotary phone.

    At Ross Holmes Virtual Lawyers, we know that there's a lot of misinformation out there about trusts and the asset protection they provide. But we're here to set the record straight. The Trusts Act 2019 has actually improved the law of trusts, including the law concerning the disclosure of information to beneficiaries. So, if anything, trusts are even more powerful now than they were before.

    We've seen clients who listened to their friends, their cousin's accountant, or their neighbor's dog walker, about the Trusts Act 2019 and wound up their trust without a second thought. Let's just say, it didn't go well. One couple sold their trust's home and distributed the proceeds to themselves, only to realize too late that they had put $563,664 at risk for geriatric care means testing. Oops.

    Don't believe us? Just ask our clients who have sold their homes to trusts and seen their assets grow over the years. One of our clients sold her home to a trust in 1986 for $180,000 and now, it's worth $1.18 million. And that money is safe and sound in the trust, where it belongs.

    So, before you wind up your trust, let's talk. We'll remind you about the asset protection benefits of your trust, and how the administration of your Trust can be simplified. We'll do it without any of the legal jargon that makes your head spin fast.

  • The Act codified, clarified, and improved the law of trusts, including the law concerning the disclosure of information to beneficiaries. Click here for further details of the impact of the Trusts Act 2019. 

The practical stuff

  • If you decide to wind up your Trust we need details of:

    • The Trust(s) IRD number(s).

    • Your IRD numbers.

    • Copies of your current passports, and if you do not have them copies of both sides of your driver’s licences.

    • For all properties owned by the Trust(s), copies of the last rate demands for those properties, and any mortgages registered against those properties.

    • Whether they are your home, a beach home, a residential rental property, a farm, or a commercial property.

    • Whether the Trust is GST registered for any of the properties.

    • In the case of residential rental properties and beach houses the date of the purchase of those properties (if it was within the last 10 years). You need to make sure that no capital gains tax is payable under the bright-line tax rules. Click here for further information.

    • If the property is a rental property, and you have claimed depreciation, you need to check with your accountant whether taxation is payable on depreciation recovered, and if so the amount payable.

    • If the Trust has term deposit(s) it may not be possible to change it into your name until the end of the term, or if it is you make lose interest.

    • Whether the trust(s) have any term deposits (and if so when each one matures, as the trust(s) will normally have to retain those term deposits until they mature.  

    Once we have that information we can give you a quotation for the cost.

  • If you wind up the trust you will need a will-based estate plan

    Please read our Guide to will-based estate plans.  

Simplifying your Trust

  • The trust should be no more difficult to manage that managing the same assets if you own them.

    If your Trust owns your home, and any holiday home you are personally responsible for paying all outgoings for those properties – you are in exactly the same position as if you owned the property in terms of outgoings, but enjoy the assets protection benefits of the Trust. In most cases, it makes no sense to undo the asset protection benefits which you have achieved by transferring ownership of the home and any holiday home back to you.

    If you are finding that the Trust’s ownership of income-earning assets is too difficult for you (that should not be the case) those income-earning assets can be sold by the Trust to you for their current market values. The Trust will lend you the sale price, upon demand and without interest. You need to sign a Deed of Loan: Cost $360. WINZ regards that debt as a liability for geriatric care means testing purposes so long as a Deed of Loan is signed.

    After the income-producing assets have been sold to the Trust, you can file a final taxation return for the Trust, and then make the Trust non-active for income tax purposes. The Trust will have no further income tax returns to file.

  • There are many benefits to having a trust, including:

    Asset protection for you and your loved ones: A trust can help protect your assets from creditors (which could arise if you have a car accident in a country where they don’t have ACC such as Australia and the Cook Islands), geriatric care costs, legal disputes, and other risks.

    The Trust pegs the value of the assets sold to the Trust at the original values that you sold them to the Trust. The increases in the value of the assets belong to the Trust, and are safe from geriatric care means testing claims. If you sold your home to the Trust in 1993 for $300,000.00 and it is now worth $1,300,000 the increase in value of the home of $1,000,000 belongs to the Trust, and not you, and is not subject to geriatric care means testing.

    The Trust protects against claims by future partners in the event of one of you dying.

    Estate planning: A trust can help ensure that your assets are distributed according to your wishes after you pass away. A will can be challenged, and leaves your assets to your loved ones often later in life, unprotected and regardless of their circumstances. If they inherit your Trust no one can take the Trust assets from them.

    Privacy: A trust can help keep your financial affairs private, as the assets are owned by the trust, not by you personally.

    The continuing asset protection benefits of your trust are detailed in our Guide to trust-based and will-based estate and asset protection plans.

Disclaimer: This article should not be relied upon for legal advice. Always seek professional legal advice before making any decisions regarding your business.