Offshore Trusts Report: New Zealand
Legal Framework and Formation Rules and Fees
New Zealand is not offshore, and it is not even considered
a ‘low-tax’ country. Nonetheless, New Zealand is one
of the world’s major trust jurisdictions, and estimates for
the number of trusts formed in the country, which stand anywhere
between 250,000 and 400,000, bear testament to this.
It is probably because of, rather than in spite of,
its membership of the OECD and its status as a ‘reputable’
and ‘tax cooperative’ jurisdiction that this growth
has taken place in the trust sector, with many governments now discouraging
taxpayers from setting up offshore investment structures in one
form or another. The country’s proximity to a growing reservoir
of personal wealth in the Asia-Pacific region has also fuelled demand
for New Zealand trusts, while its common law legal framework also
appeals to investors in the UK and North America.
Despite the fact that New Zealand does not have the strong banking
secrecy or financial privacy laws that are in place in some offshore
jurisdictions and banking centres, confidentiality is reasonably
secure as regards trusts. New Zealand has a network of almost 40
bilateral double tax treaties with information sharing provisions,
but the Inland Revenue Department tends only to accept specific
foreign requests for information from trustees and does not permit
‘fishing expeditions’ from overseas tax authorities.
Legislation which went into effect on October 1, 2006 now requires
foreign trusts to maintain records in New Zealand to make such requests
easier to comply with. However, trusts may be permitted to maintain
records with a foreign party provided that they can show the IRD
that arrangements are in place to allow the information to be easily
accessed by the tax department.
Given its historic links to the UK, trust law in New Zealand is
based heavily on English trust law and the main statute governing
trusts, the Trustee Act 1956, is similar to the UK Trustee Act 1925.
New Zealand has not yet enacted domestic legislation to give recognition
to the Hague Convention on the Law Applicable to Trusts and on their
The trust sector is a largely self-regulating industry and trustees
are given fairly wide latitude in the investments they can make.
However, the law was tightened up by the Trustee Amendment Act 1988
which bestows on the trustee the duty to invest “prudently”.
Under this provision, a trustee exercising any power of investment
shall exercise the care, diligence, and skill that a prudent person
of business would exercise in managing the affairs of others. The
threshold of this duty increases if the trustee’s profession
is that of investing money on behalf of others.
The matters to which trustees may have regard in exercising their
powers of investment under the Trustees Act 1956 include (but are
not limited to) the following:
the desirability of diversifying trust investments;
the nature of existing trust investments and other trust property;
the need to maintain the real value of the capital or income
of the trust;
the risk of capital loss or depreciation;
the potential for capital appreciation;
the likely income return;
the length of the term of the proposed investment;
the probable duration of the trust;
the marketability of the proposed investment during, and on the
determination of, the term of the proposed investment;
the aggregate value of the trust estate;
the effect of the proposed investment in relation to the tax
liability of the trust; and
the likelihood of inflation affecting the value of the proposed
investment or other trust property.
Trustees have a statutory right of indemnity under the Trustee
A New Zealand trust is created by the execution of a formal written
deed. Trusts created in writing may be either by a settlement of
trust signed by both the settlor and the trustee, or by a declaration
of trust signed by the trustee alone. No particular form of words
is required and sealing or delivery of deeds is not required.
If a trust does not have an express power of variation contained
in the deed, the trust deed may not be amended or modified without
making a successful application to the High Court to vary the deed.
The most popular form of trust is the discretionary trust. Estate
tax was abolished in the 1990s and gift duty was repealed in 2011,
so this type of trust is typically used by families in New Zealand
as an asset protection vehicle. Fixed interest trusts are also used
but are less common. Charitable trusts are also available, but non-charitable
purpose trusts are not permitted.
Under the Perpetuities Act 1964, the perpetuity period applicable
to a disposition under the rule against perpetuities is 80 years.
The Perpetuities Act 1964 sets out that the rule against accumulations
may apply to directions to accumulate but not to powers to accumulate
if the latter are specifically given to trustees.
Any trustee corporation may be appointed and may lawfully act as
the sole trustee in respect of any trust.
The instrument creating the trust may provide for or direct the
appointment of 2 or more trustees. Advisory trustees may also be
appointed to assist the trustee and any corporation may be appointed
to be custodian trustee of any trust in any case where it could
be appointed to be trustee.
The Court has powers to make an order appointing a new trustee
or new trustees, either in substitution for or in addition to any
existing trustee or trustees, or although there is no existing trustee.
The Court may take into account investment strategy in an action
for breach of trust. In considering any action for breach of trust
arising in respect of or in relation to any investment by a trustee
as a result of which any loss or losses have been, or are expected
to be, sustained by the trust, the Court may set off, as it thinks
just, all or any part of the loss or losses resulting from that
investment against all or any part of the gain or gains resulting
from any other investment, whether in breach of trust or not.