Earlier this year Russell McVeagh launched its trusts survey, which was completed by trustees, trusts practitioners and other advisers across New Zealand. The purpose was to identify current trends in the area and views on what the future might hold.
The following themes emerged:
50% of respondents considered that, until around ten years ago, it was "common" or "very common" to set up a trust for the purposes of residential care subsidy protection (on the basis that assets held in a trust, rather than held personally, may have been excluded from the asset calculations that determined who qualified for the subsidy). Only 7% of respondents consider this remains a common reason for establishing a trust. Similarly, 75% of respondents considered it was previously "common" or "very common" to set up a trust for reasons of tax efficiency, but only 29% of respondents see this as a current motivator. In both cases, this is likely to have been driven by recent law changes which have removed the protections that may previously have applied.
By far the most common reasons for establishing a trust now, according to survey respondents, is for the purposes of estate planning (almost 90% considered this a "common" or "very common" reason) and protection from creditors (82% considered this "common" or "very common"). While 71% of respondents regarded the protection of relationship property as being a "common" or "very common" reason for establishing a trust previously, those figures have dropped slightly in relation to trusts being established now (68%).
Close to 80% of respondents considered that trust disputes have increased in New Zealand over the past two years, and close to 90% consider they will continue to increase. Opinions given for the increase included the transfer of wealth and control to the next generation (and that next generation disagreeing on how the trust and its assets are to be managed), increased understanding by trust beneficiaries of their rights (and increased value of trust assets, arguably making it more worthwhile to fight for those rights), and circumstances where personal property and trust property have been intermingled, creating confusion, complexity and disappointment as to legal entitlements on the death of a parent, or the breakdown of a relationship.
As for the causes of trust disputes more generally:
52% of respondents considered a lack of trust documentation or appropriate record keeping a common or very common cause;
60% considered deficient documentation (that is, the documentation exists, but is poorly or unclearly drafted) a common or very common cause;
72% considered a failure by trustees to adhere to their duties a common or very common cause;
88% considered objections by beneficiaries to trustees' decisions or actions a common or very common cause; and
100% of respondents considered relationship breakdowns a common or very common cause.
With these concerns and experiences in mind, there are a number of things you should particularly consider if you are contemplating establishing a trust, or already involved with one (whether as settlor, trustee or beneficiary).
1. Documentation matters. Many older trusts have trust deeds that use complex, archaic and sometimes virtually impenetrable language. Others include extensive "boilerplate" clauses that are simply not relevant to the trust involved. While this may have been the norm thirty or more years ago, contemporary drafting practice in New Zealand is (or should be) focussed on clarity and practicality. With 60% of survey participants citing poorly or unclearly drafted trust documentation as a "common" or "very common" driver of trust disputes, there is an obvious benefit in ensuring core trust documentation is up to date and fit for purpose.
Changes to trust law by way of the Trusts Act 2019 prioritised plain language and accessibility to increase the ability for trustees and beneficiaries to easily understand their own rights, obligations and entitlements.[1] The same logic should follow for the drafting of the trust deed itself. If your trust deed has not been updated since the law reforms of the Trusts Act 2019, consider updating it now; both to ensure compliance with current law and to appropriately streamline and tailor deed wording, creating a document that ensures all trustees and beneficiaries can have a clear, shared understanding of how the trust operates, and where each person fits in.
2. If the goal is to use a trust to put assets beyond the grasp of a romantic partner, think again.
The Property Relationships Act 1976 ("PRA") governs the default division of property when a relationship ends. Broadly, it specifies which property is to be categorised as a couple's "relationship property", and requires that, at the conclusion of the relationship, such property be divided 50/50 between them.
Because the PRA regime is focused upon property owned by individuals personally, it is a common misconception that trust assets will fall entirely outside of that regime, and therefore not be factored into the division of property if the relationship goes awry. In fact, s 44 of the PRA provides that, where the court is satisfied that a disposition of property has been made to defeat the claim or rights of a person under the PRA, it may make orders in relation to that property (for example, orders that the property be transferred back, or compensation paid).
Similarly, s 44C provides that, where the court is satisfied that relationship property has been disposed of into a trust during the course of a relationship, and the disposition has the effect of defeating the claim or rights of one of the parties, it may make orders to compensate the affected party (for example, orders that one party pay a sum of money or transfer property to the other, and/or that the trustees make payment of trust income to the affected partner).
Section 182 of the Family Proceedings Act 1980 ("FPA") is also relevant. This empowers the court to vary the terms of a "nuptial settlement" when a marriage or civil union ends, and make orders it considers "fair in the circumstances". When a family trust is set up during the course of a relationship and one or both of the spouses are included as beneficiaries, it will almost always be considered a "nuptial settlement", triggering the potential application of s 182.[2] While the applicability of the provision will be more complex for a trust that was settled before a relationship began, it may still be relevant.[3] In addition, property acquired by a trust after it is settled can itself constitute a "settlement" for the purposes of s 182.[4]
Importantly, this is a developing area of the law, and the courts have so far been cautious not to define too restrictively what may or may not constitute a relevant "settlement" in a given case.[5] What this means in practice is that assets held within a trust are capable of being captured by s 182, and may therefore be susceptible to a claim by a former spouse or civil union partner (though not a former de facto partner) when the relationship ends.
If you do wish to protect certain assets from division in the event of a relationship breakdown, entry into an agreement under s 21 of the PRA (known colloquially as a "pre-nup", though one can be executed at any stage during a relationship) remains the best approach. By such an agreement, a couple can jointly agree that different categorisations and divisions should apply to their property (including that specified assets should be regarded as "separate property" and not divided at all).
The recent Supreme Court decision of Rimmer v Wilton [2026] NZSC 122 (see our case summary here), makes clear however the importance of parties understanding what is captured by their s 21 agreement, and when it will apply (for example, if it is intended that such an agreement apply only if the relationship ends on separation and not on death, this must be specified). It is recommended that you draft or update your will at the same time as entering into a s 21 agreement, in order that the documents can be explicitly drafted to work alongside one another, reducing the risk of inconsistency between them. A section 21 agreement should also be regularly reviewed and updated (ideally every few years, at the same time as updating both parties' wills) to ensure it continues to reflect your intentions, and continues to be legally binding.
3. A trust remains a good option as part of estate planning. When used in combination with a clear and up to date will, a family trust can be a useful means of safeguarding the passing of assets to the next generation. If a beneficiary is young or vulnerable it may be preferable for provision to be made for them via a trust (with the trustees managing the assets and distributing them over time), rather than via a direct bequest in a will. Placing assets in a trust may increase the likelihood that the family will retain and benefit from them over multiple generations, and assets held in a trust may be less directly exposed to claims under the Family Protection Act 1955.
4. However, if you are using a trust as part of your estate planning, it is important that you and your family understand what this will mean in practical terms. For example, if all of your assets have been transferred to a trust, and/or the trust is the sole beneficiary under your will, your children will have no automatic entitlement to receive anything on your death, even if they are the trust's primary beneficiaries; the timing or amount of any distributions to them will be a matter for the trustees to determine. Experience shows that a beneficiary taken by surprise by this type of outcome is far more likely to seek to bring a legal challenge than one who understood in advance the structures in place, how they would operate, and the reasons behind them.
5. Trust property is not your property. Relatedly, it is important for a trust settlor (and trustees) to remember that, as soon as property is transferred into a trust, it is held by the trustees for the beneficiaries; the trust settlor no longer has control over it, and the trustees may only deal with it in accordance with their legal duties and obligations. It is extremely important to obtain legal advice prior to establishing a trust, to ensure it is the most appropriate and efficient means of achieving your goals. If you are a trustee, it is extremely important to ensure you remain familiar with the terms of the trust deed, with your own responsibilities, and in particular with your overarching duty to administer the trust for the benefit of the beneficiaries.
On an optimistic note, survey respondents' experiences with the use of alternative dispute resolution processes ("ADR") in trust disputes, generally meaning seeking to resolve the dispute via negotiation, mediation or arbitration rather than via court proceedings, were very positive. The vast majority of survey respondents reported that between 70-100% of the trust disputes they had referred to ADR were successfully resolved as a result, even where the participants had been compelled to participate in that process (via use of an application under s 145 Trusts Act 2019, by which a trustee or beneficiary may seek orders from the court requiring that certain trust disputes be referred to ADR).
Resolution via ADR is likely to be substantially faster, and in most cases far cheaper, than taking a trust dispute to court. A less adversarial forum may also increase the likelihood of relationships between the parties being preserved, or at least left in a state where future reconciliation appears possible; a significant benefit in the context of family trust disputes. ADR processes also have the benefit of being undertaken in private, avoiding the public airing of personal grievances in court. Our view is accordingly that, if a trust dispute cannot be avoided, ADR is always worth considering. Even in cases where one or more of the parties appear to have fixed and intractable views, a day spent with a skilled and experienced mediator can often make all the difference.
Thanks to all those who participated in Russell McVeagh's trusts survey.