The following comments relate generally to independent trustees in relation to discretionary trusts. They are intended as general comments only. Any person considering trusteeship, or any trust reviewing its trusteeship, should seek specific, tailored legal advice.
WHAT IS WINDING UP A TRUST?
Winding up a trust, sometimes referred to as bringing forward the Vesting Day, is when the trust assets are distributed and the trusts on which they were held come to an end.
MATTERS TO CONSIDER?
Before finalising any decision on whether to keep or wind up a trust, you need to consider why the trust was formed in the first place, and what protection the trust was intended to provide. You also need to review whether there is any benefit in retaining the trust, or whether the ongoing obligations of proper administration for the trust outweigh any potential benefits that the trust may offer.
BENEFITS OF RETAINING A TRUST
- Asset/creditor protection
- Estate planning
- Relationship property risks
- Tax efficiency
- Potential increased eligibility for residential care subsidies
DISADVANTAGES OF RETAINING A TRUST
- Once assets are transferred to a trust, you lose absolute control over these assets as the trustees of the trust must make decisions unanimously and administer the trust assets in the best interests of the beneficiaries of the Trust.
- There are onerous obligations on trustees to administer trusts in accordance with the law.
- The Trusts Act 2019 contains a presumption that beneficiaries of trusts will be provided with trust information, so it is likely beneficiaries will know a good deal about trust business.
WINDING UP PROCESS
If a trust is wound up, it is necessary to compete relevant trust documentation recording the wind up of the trust and transfer the trust’s assets to the beneficiaries of the trust. There may also be potential tax issues with winding up a trust. Prior to deciding on a definite course of action, you should also seek accounting advice. In some situations there may also be other potential options to consider that may be more appropriate such as variations or resettlement of an existing trust.
This information sheet is based on Keam Standen Limited’s understanding of current law, policy and Ministry of Social Development decisions. Keam Standen Limited can undertake a thorough review of your individual trust situation and provide more specific advice on your situation upon request. Our fees are payable. Please do not hesitate to contact Keam Standen Limited if you would like to discuss the pros and cons of retaining or winding up your trust further.
Last updated: May 2021