By law, a family trust cannot last forever. Resettling (transferring) your family trust to one that is more suitable can trigger a number of tax consequences so bear the following in mind…
By law, a family trust cannot last forever. It has a ‘vesting day’ – this is the date when the final beneficiaries are entitled to receive their share of trust property. This cannot be more than 80 years from the date the trust is established. Very few trusts last this long or are intended to.
It could be time for your solicitor to review your deed of trust from an estate planning point of view. Many deeds, particularly those that are quite old, may have provisions that are no longer appropriate to your current personal circumstances. A common issue is when the deed has wide classes of discretionary beneficiaries (such as children, grandchildren, cousins, nieces and or nephews etc.) or it may not allow for the final beneficiaries to receive the distributions to their ‘inheritance trusts’.
Resettling (transferring) your family trust to one that is more suitable can trigger a number of tax consequences so bear the following in mind:
- Resettlement of a trust would trigger a shareholding change
for closely-held companies. Therefore consider the proportion
of a shareholding change to ensure shareholder continuity is
maintained. Not doing so may impact on the companies’ tax
losses, imputation credit accounts, or qualifying company
- Financial arrangements (loans, bonds) will require a ‘base
price’ adjustment which may result in additional interest
- Foreign portfolio investments may require ‘quick sale’
adjustments under the Foreign Investment Fund rules.
- New Zealand listed share investments on capital account will
trigger a capital gain or loss.
- There may be tax consequences for partnership
investments if the gain on the deemed disposal exceeds the
- The deemed disposal of commercial/residential property
investments will likely trigger depreciation recovered.
- Land held on revenue account may result in taxable income.
- Where debts have previously been forgiven (for natural love
and affection), income can arise depending on any new
classes of beneficiaries (such as a company).
- A resettlement may be a supply for GST purposes.
If you are thinking of taking this step contact your Hayes Knight adviser .