New Zealand Trust

The Trusts Act 2019 came into force on 30 January 2021, replacing the 1956 Trustee Act and codifying New Zealand trust law for the first time in more than 70 years. The Act does not fundamentally change the underlying principles of New Zealand trust law — which are based on English common law and equity — but it codifies, clarifies, and modernises them in accessible statutory form. The Act applies to all express trusts governed by New Zealand law, including both domestic trusts and New Zealand Foreign Trusts.

The Act distinguishes between mandatory duties (which cannot be modified by the trust deed) and default duties (which can be modified or excluded). Mandatory duties include: the trustee must know the terms of the trust; act in accordance with the trust’s terms; act honestly and in good faith; and act for the benefit of the beneficiaries. Default duties — which can be modified by the trust deed — include the duty to invest prudently, not to profit from trusteeship, to keep trust property separate, to act unanimously where there are co-trustees, and to keep accounts. Professional practitioners note that many older NZ trust deeds did not modify or exclude default duties that may create problems in practice, making a review of existing trusts against the 2019 Act important.

The Act also codifies the trustee’s obligation to provide trust information to beneficiaries — a significant change that has required practitioners to review their client arrangements. The Act sets out a presumption that information should be provided to beneficiaries on request, but trustees may withhold it after considering factors including the nature of the beneficiary’s interest, the trustee’s duties, and the potential harm of disclosure. This information disclosure framework has practical implications for trusts where the settlor prefers that beneficiaries not know the full extent of trust assets.

Duration: the Trusts Act 2019 extends the maximum trust duration to 125 years, up from the previous 80-year default. This 125-year cap applies to both domestic and foreign trusts governed by NZ law. Unlike some of the other jurisdictions in this series, New Zealand has not abolished the rule against perpetuities entirely — the 125-year cap represents the maximum permitted duration. For dynasty planning requiring genuinely perpetual structures, jurisdictions such as the Cayman Islands, Cyprus, Guernsey, and the Isle of Man offer unlimited duration.

A New Zealand Foreign Trust (NZFT) is a trust governed by New Zealand law, administered by at least one New Zealand-resident trustee, where neither the settlor nor any subsequent settlor has ever been a New Zealand tax resident. The tax treatment flows from New Zealand’s unique settlor-based approach: unlike virtually every other country, which taxes trusts based on the residence of the trustee, New Zealand taxes trusts based on the residence of the settlor. Because the NZFT’s settlor is non-resident, the trust is exempt from New Zealand income tax on foreign-sourced income.

To qualify for this exemption, the structure must meet specific conditions: no settlor is or has ever been NZ-resident; the foreign-sourced income is not derived in New Zealand; and there are no New Zealand-resident beneficiaries receiving distributions. The trust must be registered with the Inland Revenue Department (IRD) within 30 days of appointment of a NZ-resident trustee, and must file annual returns. As of the 2017 post-Panama Papers reforms, the registration requires disclosure of the settlor’s name, address, country of tax residence, tax identification number, and similar details for protectors, beneficiaries, and any persons with effective control.

The trustee income tax rate in New Zealand increased to 39% from 1 April 2024, aligning with the top personal income tax rate. This means that income retained by the trust and taxed at the trustee level bears a 39% NZ tax charge. For foreign trusts, the foreign-source income exemption means this rate is generally not applicable to qualifying income — but any NZ-source income earned by the trust is taxed at 39% in the trustee’s hands. The critical distinction: the exemption covers foreign-sourced income; any NZ-sourced income does not qualify.

A severe compliance trap exists if the settlor becomes a New Zealand tax resident. Once any settlor becomes NZ-resident, the trust moves from foreign trust status. If the trust does not elect to become a complying trust within 12 months (or within 12 months of the end of transitional residency), it becomes a non-complying trust. Distributions from a non-complying trust are subject to a 45% flat tax rate — a punishing outcome. Any client who may ever become a New Zealand resident must plan their trust structure carefully from day one, and must monitor and respond promptly if residency status changes.

New Zealand is an OECD member country, consistently ranked among the world’s least corrupt, most transparent, and best-governed jurisdictions. Transparency International regularly ranks New Zealand in the top five countries globally for absence of corruption. It is not on any international tax blacklist — not the OECD’s original harmful tax practices list, not the EU’s list of non-cooperative jurisdictions, not the FATF grey list, and not any other international designation of concern. This clean institutional profile is the most distinctive feature of the New Zealand Foreign Trust relative to every Caribbean and most Asian alternative.

In practice, this means that a New Zealand entity — including a trust with a NZ-resident trustee — can typically open bank accounts at major international banks, enter institutional investment arrangements, transact with European counterparties, and present itself to regulatory authorities in any jurisdiction without the enhanced due diligence, correspondent banking friction, or reputational scrutiny that attaches to Cayman, BVI, Bahamas, Cook Islands, and Nevis structures. For clients who have found that Caribbean trust structures create operational friction with their banks or business counterparties — because the bank compliance team flags the jurisdiction — a New Zealand structure resolves that problem entirely.

What OECD white-listed status does not mean: it does not mean the trust is invisible to tax authorities. The 2017 post-Panama Papers reforms introduced a mandatory registration regime and annual returns requirement. The IRD holds disclosure information on settlors, protectors, and beneficiaries, and automatically exchanges this information with treaty partners. CRS (Common Reporting Standard) compliance means financial account information held by NZ financial institutions is reported to the account holder’s home country tax authority. FATCA requires reporting for US persons. The pre-2017 era of New Zealand Foreign Trusts being used to hold assets entirely opaquely — the era that attracted 12,000+ trusts, of which roughly 75% left after disclosure requirements tightened — is definitively over.

The honest summary: a New Zealand Foreign Trust provides a legitimate, tax-efficient, OECD-credible structure for holding foreign assets with a clean institutional profile. It does not provide anonymity, tax evasion capability, or the protection from foreign legal proceedings that purpose-built offshore trust jurisdictions offer. For clients whose objectives fall within those parameters — legitimate tax efficiency in a clean, credible structure — New Zealand is an excellent choice. For clients seeking anonymity or adversarial creditor protection, other jurisdictions are more appropriate.

New Zealand imposes no capital gains tax (in most circumstances), no gift duty, and no estate duty or inheritance tax. These are genuine tax advantages for international clients holding foreign assets through a NZ Foreign Trust. Capital distributions from a NZFT to non-resident beneficiaries are generally not subject to NZ tax. The unique settlor-based tax system means that foreign-sourced income — investments, dividends, interest, rental income from offshore properties, business income from overseas — can be accumulated and distributed through the NZFT without NZ income tax, provided the settlor has never been NZ-resident and beneficiaries are not NZ-resident.

For clients who are themselves subject to income tax in their home country on worldwide income, the NZFT does not eliminate that liability — it simply means there is no additional layer of NZ tax on top of the home-country obligation. The trust is a legitimate holding vehicle; it is not a mechanism for hiding income from home-country tax authorities. Post-2017, the IRD’s automatic information exchange with treaty partners means that settlors and beneficiaries must assume that their home-country tax authority will ultimately learn of the trust’s existence and the distributions received.

Three tax traps to understand explicitly. First: income retained by the trust and not distributed is taxed as trustee income at 39% (from 1 April 2024) if it is NZ-sourced income. Second: if the settlor ever becomes NZ-resident and does not properly elect complying trust status within the 12-month window, the trust becomes a non-complying trust, and all distributions face a 45% flat tax rate — one of the highest penalty rates in any trust jurisdiction. Third: offshore investments over NZD 50,000 held by NZ-resident trustees may trigger Foreign Investment Fund (FIF) tax implications, which at 5% imputed income can affect the tax profile of the overall structure in unexpected ways.

For US settlors: a NZ Foreign Trust is a foreign trust for US tax purposes. Forms 3520 and 3520-A must be filed annually with the IRS. FBAR and Form 8938 apply to offshore accounts. The trust does not reduce US tax obligations in any way. New Zealand fully participates in FATCA. We always recommend clients obtain specialist tax advice in their home country before establishing any NZ Foreign Trust, to ensure the structure achieves its intended tax purpose and to understand the reporting obligations that apply in both New Zealand and the settlor’s home jurisdiction.

New Zealand trusts provide the standard trust law protection: once assets are properly transferred to the trustee, they do not form part of the settlor’s personal estate, and a creditor cannot reach trust assets as if they were still owned by the settlor. In a properly constituted discretionary trust, no beneficiary has a fixed entitlement that a creditor can attach. New Zealand courts have an extensive body of case law upholding trust structures against creditor and relationship property claims — provided the trust is genuinely independently administered and not a sham where the settlor has effectively retained beneficial ownership.

The sham trust is the central New Zealand asset protection risk. If the settlor has retained so much practical control — directing trustees as if they were employees, treating trust funds as personal money, ignoring formal trustee decision-making processes — that the trust is found to be a sham, the court can look past the trust deed and treat the assets as still belonging to the settlor personally. The Trusts Act 2019 makes proper governance more important than ever, and the increased beneficiary disclosure obligations mean trust structures that have not been properly administered are more likely to be scrutinised.

What New Zealand does not provide: there is no specific creditor protection statute with a fixed limitation period. The Trusts Act 2019 does not repeal the Statute of Elizabeth — transfers to a NZ trust made with fraudulent intent can be set aside under the Property Law Act 2007, with no fixed time bar and no reversal of the burden of proof onto the creditor. New Zealand legislation does not contain an express forced heirship firewall, and community property transferred to a NZ trust may retain its community property character in the eyes of courts applying foreign law.

For a client specifically focused on protecting assets from a determined creditor — particularly a US creditor using US courts — the Cook Islands Trust is the structurally appropriate tool. The Cook Islands provides a criminal burden of proof, a one-to-two-year limitation period after which the trust is unassailable, a 40-year track record of resisting US federal enforcement, and express statutory non-recognition of foreign commercial court orders. The Nevis Trust adds a mandatory $100,000 creditor bond before proceedings can be filed. New Zealand cannot match this statutory framework for adversarial creditor protection, and we recommend the Cook Islands directly for that purpose.

In April 2016, the Panama Papers leak revealed that New Zealand Foreign Trusts were being used extensively by foreign nationals to hold assets in a jurisdiction that was tax-free and — critically, at the time — almost entirely opaque. Pre-2017, foreign trust registration required only the trust’s name and basic trustee details; no settlor or beneficiary information was required. By 2016, over 12,000 NZFTs were registered. The New Zealand government commissioned an independent inquiry led by John Shewan, which concluded that the disclosure regime was “not fit for purpose” and that it was “reasonable to conclude that there are foreign trusts being used to hide illicit funds and evade tax.”

The government adopted the Shewan Report’s recommendations swiftly. In 2017, new rules required foreign trusts to register with the IRD providing full settlor, protector, and beneficiary details; file annual returns; provide financial statements; verify source of funds; and pay annual filing fees. The register is not publicly accessible but is searchable by NZ law enforcement agencies. The IRD automatically exchanges this information with overseas tax authorities under tax information exchange agreements. The result was immediate and dramatic: within months of the new requirements, the number of registered NZFTs fell from approximately 12,000 to fewer than 3,000 — a 75% decline. The obvious inference drawn by commentators and the opposition Labour Party was that most of the departed trusts had been maintained specifically for opacity purposes that the new transparency requirements undermined.

The honest framing for prospective clients: the New Zealand Foreign Trust market has been substantially cleansed by the 2017 reforms. The trusts that remain — and the new trusts being established — are those where legitimate tax efficiency and OECD credibility are the objectives, not anonymity. The post-2017 NZFT is a transparent, compliant structure with an excellent institutional reputation, in a jurisdiction that cooperates fully with international tax authorities.

For clients who need full disclosure of their trust to their home-country tax authority — either because they are fully compliant already, or because the post-2017 exchange of information means disclosure is effectively automatic — the NZFT’s remaining advantages (OECD profile, no CGT, professional services infrastructure) are real and meaningful. For clients who were attracted to the pre-2017 NZFT for anonymity reasons, that proposition no longer exists, and attempting to use a NZFT for those purposes would be both non-compliant and ineffective in the modern information exchange environment. Offshore Broker will not facilitate non-compliant trust structures and requires clients to obtain home-country tax advice before proceeding.

The New Zealand Foreign Trust’s natural client is an international individual or family who wants a trust in a credible, clean OECD jurisdiction — not a Caribbean offshore centre — with legitimate tax efficiency and professional services infrastructure. Typical profiles include: Asia-Pacific entrepreneurs and business owners who want a trust in a well-regarded jurisdiction with English common law, no capital gains tax, and no blacklist stigma, particularly those with Australian or Pacific business connections; clients who have found that Caribbean trust structures create banking, institutional, or counterparty friction and who want to restructure into a cleaner OECD-addressed vehicle; individuals who are tax-compliant in their home country and who want a legitimate foreign trust vehicle without the reputational association of offshore financial centres; and clients in the four-year transitional residency period who are migrating to New Zealand and need to properly structure pre-existing foreign trusts.

New Zealand’s Asia-Pacific geographic position is a genuine advantage for clients in that region. The time zone is more convenient for administration and trustee meetings involving Asian clients than European or Caribbean alternatives. The English-language legal system is immediately accessible to Asia-Pacific practitioners familiar with Australian or British Commonwealth common law.

What the NZ Foreign Trust is generally not suitable for: clients whose primary objective is adversarial creditor protection from US judgment creditors or government enforcement agencies (Cook Islands and Nevis are the structurally correct tools); clients who need an express forced heirship firewall against civil law succession claims (Guernsey, Isle of Man, Cyprus, and Mauritius offer better statutory protection); clients who need perpetual trust duration (Cayman, Guernsey, Isle of Man offer unlimited duration; NZ is capped at 125 years); and clients who want full privacy from their home-country tax authorities (post-2017 IRD information exchange makes this effectively unavailable).

The New Zealand Foreign Trust is best positioned as a legitimate, OECD-credible, Asia-Pacific-convenient trust structure for clients with clean tax compliance intentions who want professional administration in a high-reputation jurisdiction. When a client’s needs include adversarial creditor protection, forced heirship avoidance, or anonymity from tax authorities, we recommend a different jurisdiction — and we say so directly.

New Zealand’s position in the trust landscape is genuinely distinct from every other jurisdiction in this series. Every other jurisdiction in our trust offering is, to varying degrees, a specialist or purpose-built offshore financial centre with specific structural advantages in asset protection, tax efficiency, or regulatory standing that are not available in ordinary OECD jurisdictions. New Zealand is the only OECD-member, non-offshore-financial-centre country in this series — and that distinction is both its greatest advantage and its most important limitation.

The Cook Islands Trust is the world’s strongest adversarial creditor protection structure. For clients focused on protecting assets from a US judgment creditor or government enforcement agency, the Cook Islands is our recommendation — and it is not close. Criminal burden of proof, one-to-two-year limitation period, 40-year track record, express non-recognition of foreign commercial court orders. New Zealand has none of this statutory machinery. If adversarial creditor protection is the objective, New Zealand is not the right choice.

Guernsey and the Isle of Man offer OECD-adjacent credibility with far stronger trust-specific structural features: perpetual duration, comprehensive firewall legislation, GFSC/IOMFSA regulation, Hague Convention recognition, and deep UK private wealth market expertise. For clients who need an OECD-adjacent, Channel Islands-credible trust structure with proper statutory firewall provisions, Guernsey and the Isle of Man are superior to New Zealand in trust-specific terms.

Mauritius offers Africa and Asia treaty access that New Zealand cannot match; Cayman offers the STAR Trust and world-class fund infrastructure; Cyprus and Malta offer EU membership and treaty networks; the Bahamas and Nevis offer specific creditor protection statutes. In every category of purpose-built trust advantage, New Zealand is outperformed by at least one specialist jurisdiction.

Where New Zealand genuinely wins: pure OECD credibility, absence of blacklist risk, and a clean institutional profile that creates no banking or counterparty friction anywhere in the world. For a specific client profile — one who prioritises OECD address, professional administration, no CGT, and has no adversarial creditor protection need — New Zealand is the correct choice. Offshore Broker will always identify which jurisdiction best serves your actual objectives, including when that jurisdiction is not New Zealand.