Wednesday, December 22, 2010
The Law Commission is taking a close look at the use of family trusts in New Zealand where it has been estimated that there is one for every 18 people, compared to one for 294 in Britain. Use of trusts to avoid liabilities in New Zealand has increased considerably in recent years, and the commission has said that there might be as many as 400,000. The Victoria University of Wellington Tax Working Group has estimated that the ability to shelter income in trusts cost the government roughly NZD300 million in tax revenue in 2007.
The commissionís paper 'Review of Trust Law in New Zealand: Introductory Issues Paper' asks for views about a possible legislative definition of a trust, practical issues with the Trustee Act, and whether the Act ought to contain more mandatory provisions. The paper asks for responses to specific questions and seeks comments on the Act and the law that might assist the Commission in its review.
In the second paper, 'Some Issues with the use of Trusts in New Zealand' the Commission poses options for how the law could address concerns about the use of trusts. This paper looks at the purposes for which family trusts are established, including reducing tax obligations, protection of assets from creditors and relationship property claims, and meeting eligibility thresholds for government assistance. The paper seeks comment from as broad an audience as possible on issues such as why trusts are so common in New Zealand, whether limits should be placed on the uses to which trusts are put, whether high levels of settlor control is an issue for concern, how effective existing legislative mechanisms are at addressing the impacts of trusts and whether the law on sham trusts is satisfactory.
The Commission is seeking comments and submissions on this paper by March 31, 2011.