A number of family trusts in New Zealand include such people as independent co-trustees, which typically include professionals, such as the family lawyer or accountant. On 19 October the New Zealand Institute of Chartered Accountants (‘NZICA’) released a statement advising professional advisers against acting as trustees.

Why the warning? Well the Inland Revenue (IRD) has begun a bit of a witch-hunt by actively pursuing trustees personally for any tax debts owed by a trust. Even trustees with no personal connection to the income or assets of the trust are in the IRD’s crosshairs.

So is this fair? This approach can be likened to pursuing an independent company’s directors for the tax debt of the company simply because they are board members. By targeting “the deepest pockets” the IRD could be upsetting the governance foundations underpinning most trusts and discouraging many professional advisers from acting as a trustee. However the warning brings another cause for concern – will those professional advisers acting as trustees abandon their positions? If they do then this will create an impasse for all trusts as professional advisers may be less inclined to take-up trustee appointments on behalf of their clients; a lose-lose situation.

NZICA’s Tax Director Craig Macalister believes the IRD’s actions to be inappropriate. “When a trust is not in a position to meet its tax obligations, it would seem that Inland Revenue will pursue the trustee with the deepest pockets, which will invariably be the professional trustee who has taken on the role as part of their engagement with the client. This is despite the fact that the trustee is clearly only acting in his/her professional capacity,” says Mr Macalister.

Having a professional adviser as a trustee, such as the family accountant or lawyer, not only bolsters the governance of a trust, it also ensures the other trustees have access to invaluable administrative services and advice pertaining to their accounting and legal obligations.  As a result of the IRD’s actions, my prediction is that professional trustees will likely reconsider providing such services, or look for a way to appropriately indemnify themselves against any claim. The unfortunate spin-off effect of this will likely be an increase in the fees charged by professionals for taking on the risks associated with being a trustee.

Ensuring proper trust administration and that a level of independence exists between the trust and its trustees, provides some protection against bogus trust claims. Typically trustees enjoy a right of indemnity to be reimbursed by the trust for all costs and expenses reasonably incurred while undertaking their duties. However, this right can be lost if the trustees fail to meet their duties, which could see them being forced to sell their own assets to meet the loss. This is a very important consequence, one which shouldn’t be taken lightly and needs to be considered when either appointing or being asked to be a trustee.

The number of trusts in New Zealand is growing, and reportedly sits around 240,000 – this is based on the number of trusts that file tax returns with the Inland Revenue. However, other estimations have picked this number to be closer to 400,000.

So if appointing a professional adviser as a trustee is off limits, who should you use in their place? Or more accurately put, who would you subject to the rigors of trusteeship? Your best mate, your mother-in-law, your parents, or your brother or sister? If you can convince one of them to step-up as a trustee, what risks would they be exposed to and would they have to sell some of their assets to fund a claim?

Alternatively, if you decide to keep it simple and don’t use an independent trustee, would the trust be considered an altered ego of you or a sham trust? That is, to what extent are the assets of the trust (e.g. the family home) treated as if they were your own, and consequently have the trustees acted in the best interests of the beneficiaries? The concept of a sham trust essentially stems from the notion that it is something that isn’t genuine, a disguise or a façade.

So with IRD’s witch-hunt underway, what will this mean for trusts in the future? Ensuring the structure of a trust is strong will ultimately rest with the trustees of the trust, so choose wisely.


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I use a company of which I own all the shares, but the directors are my solicitor and his son who is a partner in the law firm. I can fire them by calling a shareholders meeting, still leaving the company as a trustee. This seems relatively foolproof.


Having a corporate trustee does reduce the risk. In what you have proposed below, you will still need to appoint a director for the company.

The author replies

Many family trusts might want their accountant as a trustee. On the tax side at least the tax calculations would be correct and since in many cases tax is deducted at source payment not a problem either.
As most taxes are paid from revenue/profits already made it is intriguing to know why these taxes would not be paid. Unfortunately an accountant trustee on his/her own cannot ensure this is done?
The accountants protection “from records supplied to us…” should protect the accountant from other unscrupulous trustees. In general, financially prudent decisions could be expected of the accountant trustee but not necessarily tricky equitable decisions which
should be left to the solicitor trustee. Unfortunately it is not really possible to be highly skilled in both disciplines It does seem that as usual laws for the bad have spoiled it for the good.

Mark Stevensreply

You are correct in saying that there are many income streams in which tax is deducted. The IRD are focusing on lost revenue particularly to do with land transactions (which may result in a loss of GST and income tax revenue).

The wording “from records supplied to us” will generally protect the accountant in their capacity as an accountant but not necessarily as a trustee.

These changes re-iterate the need for careful consideration before taking on trusteeships.

The author replies

Most professionals now have companies as the preferred method of taking on independent Trustee positions, those companies can often be ghost companies, that is with no assets.

Errol Anderson – Registrar NZ Trustees Associationreply

Yes there is the option to use a company structure. In some circles this is also known as a Corporate Trustee. Broadly speaking this has the advantage of reducing risk, however they do tend to be associated with higher fees, part of which is attributed to the on-going administration cost that comes with putting such a structure in place.

The author replies

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