New Zealand trusts for international wealth structuring

This article provides an introduction to trusts in New Zealand, examines the components of a trust, the different types of trusts available, taxation issues and practical uses for New Zealand foreign trusts. New Zealand is not an ‘offshore’ jurisdiction. However, New Zealand has grown in prominence as an international wealth structuring jurisdiction over recent years largely due to its tax neutrality as regards ‘foreign’ trusts and, more recently, limited partnerships. This article will focus on the New Zealand ‘foreign’ trust. New Zealand has grown in prominence as an international wealth structuring jurisdiction over recent years largely due to its tax neutrality. New Zealand is under Organization for Economic Co-operation and Development (OECD) and Financial Action Task Force (FATF) member jurisdiction and is therefore distinct from some other jurisdictions offering tax neutrality as regards trusts established by or for the benefit of people who do not live in the same country as the trustee. Furthermore, the New Zealand ‘foreign’ trusts regime is based predominantly on a deliberate and long-standing tax ‘philosophy’ rather than a contrived legislative framework intended to create a new industry for the economy. The Inland Revenue Department focuses on the source of income and residency of the settlor and person(s) who will ultimately benefit from that income. The fundamentals of New Zealand trust law have been in place and have gradually evolved since New Zealand was first colonized by Great Britain in 1840. New Zealand has an extensive network of international tax treaties. There are certain disclosure requirements as regards ‘foreign’ trusts but these are limited and only affect residents of Australia and New Zealand. Polynesian and European heritage New Zealand is a former British colony and has a strong Polynesian, European and Anglo-Saxon heritage reflected in English and Maori being the two official languages spoken and governmental and judicial systems based on a Westminster model. New Zealand is a self-governing member of the Commonwealth. *Henry Brandts-Giesen TEP, Helmore Ayers & Helmores Wealth Limited, 90 Armagh Street, PO Box 13-331, Christchurch, New Zealand. Tel: þ64 3 3665086; Email: henry@helmores.co.nz The Author (2010). Published by Oxford University Press. All rights reserved. doi:10.1093/tandt/ttq009 by on M arch 2, 2010 http://tanfordjournals.org D ow nladed fom At least in some circumstances, a trustee in close geographic proximity to the UK and Europe can be disadvantageous—particularly as the trend continues for courts, revenue authorities and public policy for a to extend their jurisdictional reach far beyond traditional borders. Of course, New Zealand is by no means immune to these measures but, at least for now, enjoys relative independence. For quite legitimate reasons, settlors and beneficiaries may desire their assets to be held further afield than the traditional Crown Dependencies and Carribean jurisdictions. There is no denying that New Zealand is literally at the other end of the world in both time and distance. However, it is generally agreed that the development of the internet, email, scanned resolutions, BlackBerry, Skype and other communications technology—together with good old-fashioned organizational skills—mean that this time difference can be well managed. Inevitably for the poor Kiwi trustee, this does mean that the odd late night phone call or email is inevitable! In practice, discretionary investment management is nearly always delegated to an investment manager resident in a more favourable time zone. There are also other ways and means of managing the trustee/ beneficiary relationship including the use of delegated authorities, administration agreements, managed trust company structures and, as revealed in the following paragraphs, use of the provisions contained in the Trustee Act 1956 which allow for different types of trustee, each with unique roles. An emergingmarket outlook New Zealand is reasonably well situated to the major and emerging markets of Asia and Australia. Admittedly, due to the disclosure requirements there are likely to be very few, if any, New Zealand ‘foreign’ trusts established by Australian resident settlors. Due to the disclosure requirements there are likely to be very few, if any, New Zealand ‘foreign’ trusts established by Australian resident settlors. Currently, New Zealand seems particularly attractive for settlors from Mexico, Brazil and Italy, for whom direct use of traditional ‘offshore’ financial centres has been proscribed. Furthermore, there is a strong Asian and Southern African cultural influence and synergy within New Zealand society due to high levels of foreign direct investment in, and immigration to, New Zealand in recent decades. Introduction to trusts inNewZealand The paragraphs that follow are applicable to all trusts governed by New Zealand law. Apart from their tax treatment, New Zealand ‘foreign’ trusts do not differ from their domestic counterparts. They are all subject to the same principles of law and equity. A trust in New Zealand is more or less akin to its counterparts in the UK and many of the ‘offshore’ jurisdictions. In that respect, some of the following paragraphs may, for some readers, be very basic and unenlightening. Suffice to say a trust in New Zealand is a legally binding arrangement whereby a person (the ‘settlor’) transfers assets to another person (the ‘trustee’) who becomes the registered owner of the trust assets for the benefit of other persons named in a trust deed (the ‘beneficiaries’). Unless named as a beneficiary or otherwise permitted by the trust deed, a trustee is prohibited from benefiting from trust assets. The manner in which the settlor requires the assets to be managed and, ultimately, distributed will normally be contained in the trust deed. It is fair to say that the standard of trust administration in New Zealand can be uneven. However, generally the judiciary is well familiar with trust principles (there are estimated at being several hundred thousand ‘domestic’ trusts in New Zealand). However, an area in which the jurisdiction could almost certainly improve its credentials would be through the establishment of a specialized equity division of the bench. There are high standards of prudence imposed on trustees under New Zealand law. Trusts & Trustees, Vol. 16, No. 3, April 2010 Articles 169 by on M arch 2, 2010 http://tanfordjournals.org D ow nladed fom In very general terms the duties of a trustee under New Zealand law include: (i) acquaintance with the trust and its affairs; (ii) compliance with the terms of the trust; (iii) taking possession of trust property and preserving it; (iv) if necessary, bringing and defending legal proceedings to protect trust property; (v) fidelity to the trust; (vi) proper administration of the trust; (vii) diligence and prudence; (viii) unless so authorized by the trust deed, not making voluntary gifts or payments from the trust; (ix) acting personally; (x) acting unanimously where there is more than one trustee, unless otherwise authorized by the trust deed; (xi) acting impartially between beneficiaries; (xii) acting honestly and not benefiting one beneficiary over another except to the extent that the trust deed confers that discretion on the trustee; (xiii) paying the income and capital of the trust property to the persons who are entitled to them respectively; (xiv) giving information regarding the trust to the beneficiaries; (xv) keeping accurate accounts of the trust