Family Trusts are a very effective way for anyone to protect their assets from a wide range of events that in many cases are beyond our control.
But it's not just a matter of getting a family trust set up and leaving it alone! There are important administrative details that simply must be managed properly. The risks of not doing this could cause serious problems in the future, and cause an overpayment of tax to the IRD.
One of these administrative details that should be considered by you and your accountant or lawyer responsible for setting up your family trust, relates to correct trustee resolutions being made at the right time.
Under New Zealand Law, income earned by a Family Trust or Trust must have tax paid on it.
In some cases however, from a tax perspective, there can be advantages for the Trust to pay the income it has received, out to its beneficiaries.
For example, all income retained by a Trust must be taxed at the Trustees income tax rate. Trustees are taxed at a flat rate of 33%. If however Trustees make a decision to distribute beneficiary income, the tax that must be paid on that distribution will be levied at the marginal tax rate of the recipient beneficiary. That can be as low as 19.5%.
If the Trustees chose to distribute beneficiary income, they must make that decision within 6 months of the balance date of the Trust. In the majority of cases, this means that resolutions recording the decision to make the distribution must be prepared and executed by all Trustees by the 30th day of September of each year.
If this process is not completed by that date, all income that a Trust receives is deemed Trustee income and is accordingly taxed at the Trustees income tax rate of 33%.
So, if you are considering setting up a family trust, or have an existing a family trust, check that your accountant or lawyer has properly prepared for the execution of trust resolutions. It could mean more money in your pocket! - 20607
But it's not just a matter of getting a family trust set up and leaving it alone! There are important administrative details that simply must be managed properly. The risks of not doing this could cause serious problems in the future, and cause an overpayment of tax to the IRD.
One of these administrative details that should be considered by you and your accountant or lawyer responsible for setting up your family trust, relates to correct trustee resolutions being made at the right time.
Under New Zealand Law, income earned by a Family Trust or Trust must have tax paid on it.
In some cases however, from a tax perspective, there can be advantages for the Trust to pay the income it has received, out to its beneficiaries.
For example, all income retained by a Trust must be taxed at the Trustees income tax rate. Trustees are taxed at a flat rate of 33%. If however Trustees make a decision to distribute beneficiary income, the tax that must be paid on that distribution will be levied at the marginal tax rate of the recipient beneficiary. That can be as low as 19.5%.
If the Trustees chose to distribute beneficiary income, they must make that decision within 6 months of the balance date of the Trust. In the majority of cases, this means that resolutions recording the decision to make the distribution must be prepared and executed by all Trustees by the 30th day of September of each year.
If this process is not completed by that date, all income that a Trust receives is deemed Trustee income and is accordingly taxed at the Trustees income tax rate of 33%.
So, if you are considering setting up a family trust, or have an existing a family trust, check that your accountant or lawyer has properly prepared for the execution of trust resolutions. It could mean more money in your pocket! - 20607
About the Author:
Janet Xuccoa BCom LLB, is a director from Gillgan Rowe + Associates. She is a recognised Family Trust and LAQC expert in New Zealand where she leads the Trusts and Estate Planning division. Want to protect your assets and grow your wealth? Get your Free Family Trust Report: "The 9 Deadly Sins of Setting Up a Family Trust
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