Winding up your Trust - Before you pull the trigger, seek expert legal advice to make the right decision
Thinking of winding up your Trust?
Thinking of winding up your Trust?
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Pause. A trust is like insurance — you don’t cancel it because of rumours.
The Trusts Act 2019 didn’t end trusts. It clarified trustee duties and improved how beneficiary information is handled. A trust can still protect family assets and give you flexibility that a will alone can’t.
Winding up is permanent. Once assets are back in personal names, you can’t “undo” that if life throws a curveball.
Before you decide, get the facts:
What actually changed under the 2019 Act.
How to simplify trust administration.
When updating your deed beats winding up.
Want plain-English answers? Read the blogs on this page — they cover the protections your trust still provides and how to keep things simple.
If you’re still unsure after reading, we can review your trust and give you clear options: keep, update, or wind up — with your eyes open.
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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.
Our blogs on winding up Trusts
Simplifying your Trust
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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.
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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.
The practical stuff
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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.
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If you wind up the trust you will need a will-based estate plan
Please read our Guide to will-based estate plans.
Disclaimer: This article should not be relied upon for legal advice. Always seek professional legal advice before making any decisions regarding your business.