There are many factors that should be considered when establishing a trust, one of the most important of which being the location of the trust. Although there are plenty of options worldwide, New Zealand is becoming one of the more popular trust jurisdictions in the world for several reasons.
Anthony Robert D’Aniello is a Senior International Attorney/Investment Banker with more than 27 years of progressive experience and expertise particularly in the area of international tax and estate planning. He is qualified as an attorney both in Ontario, Canada, the Turks and Caicos Islands, and the United Arab Emirates (legal consultant/manager). Anthony D’Aniello has held several international positions throughout North America, the Caribbean and Middle East dealing with and advising ultra-high net worth clients. His practice areas include corporate and commercial law with emphasis on real estate, resort development, infrastructure project, public private partnerships (PPP), finance, trusts and wealth management. Anthony’s education and experience are relevant when discussing New Zealand as a Trust Jurisdiction.
New Zealand Trusts
A trust, which is a concept of common law, refers to an arrangement whereby a person, known as a trustee, owns and holds assets on behalf of another person/entity, known as a beneficiary.
A trust, which is a concept of common law, refers to an arrangement whereby a person, known as a trustee, owns and holds assets on behalf of another person/entity, known as a beneficiary. While the trustee has legal rights to the trust assets, they can only deal with the trust assets on behalf of the beneficiary of the trust. A trustee could be an individual person, a group of people, or a company, notes Anthony Robert D’Aniello. Trusts as a legal concept were originally developed in England.
A New Zealand foreign trust exists in situations whereby, for tax purposes, the trustee is a resident of New Zealand, no “settlor” of the trust (be it an individual) can be a resident of New Zealand, nor can a company (legal entity) incorporated in New Zealand which also is classified as a resident of the country.
Due to the economic and political stability of New Zealand, it has gained a strong reputation as a safe and reliable location for non-residents of the country to open New Zealand foreign trusts as an aspect of both wealth and estate planning, says Anthony Robert D’Aniello. Unlike other jurisdictions, New Zealand foreign trusts are not taxed through the residency of the trustee, but by the residence of the settlor. Ultimately, this suggests that so long as the settlor and assets and any income generated from the assets is located outside of New Zealand, the trust will not be subject to New Zealand tax. Due to this zero-tax liability in New Zealand, neither the trust nor the beneficiaries can be taxed twice.
What are the Benefits of a New Zealand Foreign Trust?
In addition to operating in a country with such strong economic and political stability, New Zealand foreign trusts offer a unique set of benefits. Trusts in general offer creditor protection, as assets are owned by the trust, and the trustees with legal ownership have control and discretion over the assets. In other words, the beneficiaries do not own the assets but rather only have a beneficial interest in the assets. The settlor has the flexibility to choose the beneficiaries which can virtually be anyone or anything.
The main benefits of establishing a New Zealand foreign trust; however, relate to taxes, says Anthony Robert D’Aniello. As a country, New Zealand does not impose capital gains tax, wealth tax, inheritance tax, or stamp duty. A trust that is established in New Zealand and meets the New Zealand Income Tax Act’s definition of a foreign trust is not taxed within the country on any income it earns outside of the country. As well, the beneficiary who is not a resident of the country will also not be taxed in the country on that income if it is distributed to the beneficiary. This makes New Zealand an ideal location to set up a foreign trust.
Final Thoughts from Anthony Robert D’Aniello
While setting up a New Zealand foreign trust may seem ideal, notes Anthony Robert D’Aniello, the Trusts Act 2019 brought forth some significant changes. With the new act, the role of the trustee has become more significant. There are now several mandatory obligations that trustees must follow, including the presumption to provide information to beneficiaries. On a more positive note, the new Trusts Act also increased the maximum duration of the trust to 125 years as opposed to 80 years. It is important for those considering establishing a New Zealand foreign trust states Anthony D’Aniello to be aware of the new changes and discuss them along with if a New Zealand foreign trust is suitable based on each person’s unique set of circumstances with their professional advisor before moving forward.
This article is not intended to be a research report or to be considered tax or investment advice.