Being a trustee - is it worth the hassle?
April 20, 2021
Being a trustee - is it worth the hassle?
Firstly, a bit of background. Family trusts are a way to protect assets, either for your own benefit or for the benefit of your family or others beyond your lifetime. The assets may be cash or other types of assets such as real estate, life insurance, vehicles and securities. Trusts work by transferring the ownership of the assets to trustees. For example, a family that lives in a family home transfers the legal ownership of their asset, the family home, to the trustees. The family can continue to use and enjoy the assets (as long as allowed by the trust deed) even though they no longer personally own the home.
A trust may be useful to:
• Protect assets against future claims and creditors, such as if a business failed
• Put aside money for a special purpose, such as a child's education
• Ensure children, and not their partners, receive their intended inheritances
• Reduce the risk of unintended claims on an estate in the event of death.
While trusts can have benefits, they can also involve a considerable amount of resources in administering them properly. This needs to be weighed against any possible advantages a trust may have.
Although a trust is normally given a name and is often referred to as if it is a separate entity, like a company, it is not. A trust is a relationship between trustees and beneficiaries which imposes duties on the trustees to deal with the trust property in the interests of beneficiaries.
I'm a Trustee - what are my obligations?
The trustees are responsible for managing the trust for the benefit of the people (or organisations) named as the trust’s beneficiaries. In practice, this can often involve some fairly time consuming obligations. Trustees can also be held personally liable - so tread with caution!
Specifically, the legal duties of trustees are to:
• know the terms of the trust, as recorded in the trust deed, and act according to those terms;
• act honestly and in good faith;
• act for the benefit of the beneficiaries;
• exercise their powers as a trustee for a proper purpose;
• keep copies of the trust deed and any variations;
• give basic trust information to every beneficiary (including the fact that they are a beneficiary; the names and contact details of the trustees; details of the appointment, retirement or removal of trustees, and their right to trust information.)
Unless the trust deed specifically excludes it, legal duties also include:
A trustee may be personally liable for debts incurred by the trust, especially if the loss was a result of an intentional breach of trust, dishonesty, or negligence.
How can we help?
We regularly help to advise clients on whether a trust is right for them. For clients that are trustees, we can help them meet their obligations. Some trusts are relatively simple to administer properly, while others that are more complex require a great deal of time and care from the trustees.
A trust with one asset, such as a mortgage-free family home, with all outgoings paid by the family, would generally only need minimal administration. On the other hand, a trust with a range of assets, including income-producing investments, would require a lot of administration. On top of completing an annual tax return, the trustees would need to undertake, for example, periodic reviews of investment strategies and continuous maintenance of the assets themselves.
We are experienced in advising on such issues and are always available to assist.
Disclaimer: This post is a general discussion and does not constitute specific advice. Any concepts or ideas raised in this post should be discussed with your accountant and/or solicitor to ensure that all relevant matters are considered.
A trust may be useful to:
• Protect assets against future claims and creditors, such as if a business failed
• Put aside money for a special purpose, such as a child's education
• Ensure children, and not their partners, receive their intended inheritances
• Reduce the risk of unintended claims on an estate in the event of death.
While trusts can have benefits, they can also involve a considerable amount of resources in administering them properly. This needs to be weighed against any possible advantages a trust may have.
Although a trust is normally given a name and is often referred to as if it is a separate entity, like a company, it is not. A trust is a relationship between trustees and beneficiaries which imposes duties on the trustees to deal with the trust property in the interests of beneficiaries.
I'm a Trustee - what are my obligations?
The trustees are responsible for managing the trust for the benefit of the people (or organisations) named as the trust’s beneficiaries. In practice, this can often involve some fairly time consuming obligations. Trustees can also be held personally liable - so tread with caution!
Specifically, the legal duties of trustees are to:
• know the terms of the trust, as recorded in the trust deed, and act according to those terms;
• act honestly and in good faith;
• act for the benefit of the beneficiaries;
• exercise their powers as a trustee for a proper purpose;
• keep copies of the trust deed and any variations;
• give basic trust information to every beneficiary (including the fact that they are a beneficiary; the names and contact details of the trustees; details of the appointment, retirement or removal of trustees, and their right to trust information.)
Unless the trust deed specifically excludes it, legal duties also include:
- using reasonable skill and care when managing the trust, using any special knowledge or expertise they have eg, as a lawyer, accountant;
- investing the trust assets prudently;
- acting unanimously;
- not using their power as trustee for their own benefit;
- acting impartially between beneficiaries; and
- not taking any reward for their duties (it is acceptable to be reimbursed for costs).
A trustee may be personally liable for debts incurred by the trust, especially if the loss was a result of an intentional breach of trust, dishonesty, or negligence.
How can we help?
We regularly help to advise clients on whether a trust is right for them. For clients that are trustees, we can help them meet their obligations. Some trusts are relatively simple to administer properly, while others that are more complex require a great deal of time and care from the trustees.
A trust with one asset, such as a mortgage-free family home, with all outgoings paid by the family, would generally only need minimal administration. On the other hand, a trust with a range of assets, including income-producing investments, would require a lot of administration. On top of completing an annual tax return, the trustees would need to undertake, for example, periodic reviews of investment strategies and continuous maintenance of the assets themselves.
We are experienced in advising on such issues and are always available to assist.
Disclaimer: This post is a general discussion and does not constitute specific advice. Any concepts or ideas raised in this post should be discussed with your accountant and/or solicitor to ensure that all relevant matters are considered.
Why Use a Chartered Accountant in New Zealand? Managing tax and financial obligations can become complicated, particularly for business owners, investors, and professionals with multiple income sources. While accounting software is helpful for recording transactions, it cannot replace professional advice or judgement. Working with a Chartered Accountant in New Zealand provides access to a qualified professional who operates within a recognised regulatory and ethical framework. Below are some of the key benefits. Recognised Professional Qualification Chartered Accountants are membe rs of Chartered Accountants Australia and New Zealand (CA ANZ), th e professional body responsible for training and regulating Chartered Accountants in New Zealand and Australia. To become a Chartered Accountant, individuals must complete a relevant university degree, undertake a structured professional programme, and gain several years of practical experience. They must also complete ongoing professional development each year to maintain their membership and keep up to date with changes in tax law and accounting standards. A Strong Code of Ethics Chartered Accountants must follow a st rict professional Code of Ethics. This requires them to act with integrity, objectivity, professional competence, confidentiality, and appropriate professional behaviour. These are enforceable professional standards. If a complaint is made about a Chartered Accountant, it can be investigated through a formal disciplinary process. Professional Indemnity Insurance Chartered Accountants in public practice are required to maintain Professional Indemnity Insurance . This insurance provides protection if professional advice results in financial loss due to an error or negligence. While mistakes are not common, having insurance in place provides an additional level of protection for clients. Inland Revenue Tax Agent Status Most Chartered Accountants are also registered tax agents with the Inland Revenue. Clients linked to a recognised tax agent may be eligible for Inland Revenue’s Extension of Time (EOT) concession. This usually allows additional time to file income tax returns beyond the standard deadline, provided certain criteria are met. Advice Beyond Compliance A Chartered Accountant does more than prepare financial statements and tax returns. They can also help with business structures, tax planning, cashflow management, and financial decision-making. They often work alongside banks, lawyers, and financial advisors to help ensure financial matters are handled correctly. Final Thoughts Using a Chartered Accountant provides access to professional expertise, ethical standards, and accountability. For many individuals and businesses, this helps ensure their tax affairs are managed correctly and that financial decisions are made with confidence. Disclaimer: This post is a general discussion and does not constitute specific advice. Any concepts or ideas raised in this post should be discussed with your accountant and/or solicitor to ensure that all relevant matters are considered.
Investment Boost: A New Incentive for New Zealand Businesses The Government has recently introduced a measure known as Investment Boost, designed to encourage New Zealand businesses to invest in productive assets. The aim is to support economic growth by improving cashflow for businesses that are upgrading equipment, technology, or other business assets. What is Investment Boost? Investment Boost allows businesses to claim an immediate tax deduction equal to 20% of the cost of eligible new assets in the year they are purchased and first used. The remaining 80% of the asset’s cost is then depreciated as usual under the standard Inland Revenue depreciation rules. In effect, this accelerates part of the tax deduction that would otherwise be spread over several years. What assets qualify? The rules generally apply to new depreciable assets used in a New Zealand business. Examples may include: Machinery and equipment Commercial vehicles Technology and IT equipment Tools and manufacturing assets Some commercial building improvements Assets that are already excluded from depreciation (such as most residential buildings) will generally not qualify. Why this matters for businesses For many businesses, purchasing new equipment can be a significant cashflow decision. By allowing a portion of the cost to be deducted immediately, Investment Boost may: Reduce taxable income in the year the asset is purchased Improve short-term cashflow Make investment in productivity-enhancing assets more attractive While the total depreciation available over the life of the asset does not change, the timing of the deduction improves. Planning considerations If you are considering purchasing business equipment or upgrading technology, it may be worth reviewing the timing of those purchases. Bringing forward investment into a year where Investment Boost applies could provide a useful tax advantage. As always, the specific outcome will depend on the nature of the asset, the structure of your business, and your expected income for the year. Need advice? If you are planning to invest in new business assets and would like to understand how Investment Boost might apply to your situation, feel free to get in touch. We can help review the potential tax impact and ensure the deduction is applied correctly.
End of year tax tips As 31 March approaches, it is worth taking a moment to review your business’s financial position and ensure everything is in order before the end of the tax year. A little planning at this stage can make a meaningful difference—helping you claim legitimate deductions, avoid unnecessary tax costs, and start the new financial year with clean records. Below are several practical areas New Zealand business owners may wish to review before balance date. Review and write off unrecoverable debts If your business has invoices that are unlikely to be paid, consider whether they should be written off before 31 March. For tax purposes, bad debts are only deductible if they are formally written off in the accounting records before the financial statements are finalised. This generally means removing the debt from both the accounts receivable ledger and the general ledger. Simply identifying a debt as doubtful is not enough—the write-off must be recorded in the accounts. Consider charitable donations Donations made to approved charities before the end of the tax year may provide a tax benefit. Companies can generally claim a deduction for qualifying donations, while individuals may be entitled to a donation tax credit. In both cases, you will need to retain the donation receipt issued by the charity. For individuals, the donation tax credit can usually be claimed shortly after the end of the tax year once income details have been finalised. Check dividends and imputation credits If your company intends to pay dividends, it is important to review the balance of the imputation credit account (ICA). Ending the year with a debit balance can result in penalty tax, so careful management of imputation credits is important when planning dividend distributions. Where dividends are being considered, it may be worth reviewing the ICA position before the financial year closes. Review shareholder current accounts Overdrawn shareholder current accounts can give rise to tax implications, particularly if they remain unpaid for extended periods. Before year end, it may be sensible to review any shareholder balances and consider whether they should be repaid, cleared through salary or dividends, or charged interest where appropriate. Check elections relating to your business structure Certain tax elections are time-sensitive and often revolve around the balance date. These may include decisions about business structures or group arrangements, such as look-through company elections or joining a tax consolidated group. If structural changes are being considered, the end of the tax year is a good time to confirm whether any elections need to be made. Review trading stock Balance date is also an opportunity to review inventory. If you hold stock that is obsolete, damaged, or unlikely to be sold, it may be appropriate to write it down or dispose of it. Where stock is scrapped or written off before year end, this may allow a deduction to be recognised for tax purposes. Utilise tax losses within a group If your business operates within a group structure, tax losses in one company may be able to be offset against taxable profits in another. This can be achieved through mechanisms such as loss offset elections or subvention payments, provided the relevant ownership and timing requirements are met. Because these arrangements often require documentation and elections, it is best to consider them before 31 March. Taking a proactive approach Spending a little time reviewing these areas before balance date can help ensure your business is in a strong position heading into the new financial year. A year-end check can help identify deductions you are entitled to claim, ensure compliance with Inland Revenue rules, and reduce the risk of unexpected tax issues later on. If you are unsure whether any of these items apply to your business, it may be worth discussing them with us before the end of the financial year. Disclaimer: This post is a general discussion and does not constitute specific advice. Any concepts or ideas raised in this post should be discussed with your accountant and/or solicitor to ensure that all relevant matters are considered.