Although the maximum duration for most trusts in New Zealand is 125 years, in many cases the terms of a trust deed will provide for dissolving (winding up) the trust before that time has expired.Winding up a trust in New Zealand involves a series of legal and administrative steps to ensure the proper distribution of assets, usually to the trust’s beneficiaries, and the termination of the trust's obligations.Reasons for Dissolving a TrustTrusts may be dissolved for reasons including:Fulfilment of Trust Purpose: The original purposes of the trust may have been achieved or may no longer be relevant.Restructuring Assets: A change in circumstances may prompt a restructuring of affairs. For example, the settlor having set up a family trust may wish to simplify their asset structures in their retirement.Other Changed Circumstances: For trusts with beneficiaries, the beneficiaries' needs or circumstances may have changed such as to make the trust structure less appropriate.Administrative Burden: Increased compliance requirements have made trust administration potentially more burdensome, and this may lead parties involved in trusts to consider dissolution. However, this is usually more of a prompt to consider whether, for example, a trust is still adequately fulfilling its intended purposes in light of the current compliance requirements, rather than a reason in itself for winding up.Steps to Dissolve a TrustReview the Trust Deed: Whether and how a trust may be wound up will depend on its terms. Some trust deeds will set out a specific termination date or specific conditions under which the trust can be dissolved. Beyond that, deciding the question of, for example, whether a trust has fulfilled its purposes, requires clarity on what those purposes are.Obtain Consent from Beneficiaries (if applicable): If the trust deed allows, and depending on the type of trust, the consent of the trust’s beneficiaries should be sought. This will be especially relevant if the trustees intend to distribute the trust assets other than to the beneficiaries who would have been entitled to the trust funds had the trust reached its maximum duration. Usually the trustees will have a discretion to do so, but are under a duty to consider the best interests of those beneficiaries when making the decision.Trustees must terminate the trust and distribute the trust property if required to do so by all beneficiaries who together hold the entire beneficial interest.Settle Liabilities: Ensure all debts and liabilities of the trust are paid or transferred. This includes any tax obligations, loans, or other financial responsibilities.Distribute Assets: Transfer the remaining trust assets to the beneficiaries as outlined in the trust deed. This may involve property transfers, financial distributions, or other asset allocations.Final Administrative Tasks: Close any bank accounts held in the trust's name, deregister the trust for GST (if applicable), and notify the Inland Revenue Department (IRD) of the trust's cessation. In most cases, a request to cease a trust must be made in writing to the IRD.Legal and Tax ConsiderationsIt's essential to seek professional legal and accounting advice when dissolving a trust to ensure compliance with all legal obligations and to address any potential tax implications. Trustees should be aware of their duties under the Trusts Act 2019, including the mandatory and default duties outlined in the Act.SummaryDissolving a trust in New Zealand requires careful consideration of the trust deed, consultation with beneficiaries, settlement of liabilities, and adherence to legal requirements. Professional advice is crucial to navigate the complexities involved and to ensure a smooth and compliant termination of the trust.
