Currently in New Zealand law, a trust is automatically wound up, or terminated, at the end of 80 years from the date of the trust deed. However, a trust may be wound up earlier than the 80 years (if the trust deed allows for this) and the trust assets are distributed.
Trustees may decide to wind up the trust earlier for various reasons, including:
Trustees should ensure that there are good records of: distributions made, assets owned by the trust, debts which may be owed to, or by, the trustees, and trustees receiving any gifts.
When trustees are winding up the trust and distributing assets they should also obtain tax and accounting advice to ensure that the distribution does not trigger a tax liability for the trustees.
Trustees will continue to remain liable for the trust’s tax liabilities following the winding up of the trust. Once a trust’s assets are fully distributed the trustee’s right to indemnity from the trust assets is in effect limited as there are no assets.
Mechanics of winding up a trust
Winding up a trust usually involves lawyers attending to, and advising on, the following:
Trustees should also do the following:
Winding up a trust can be relatively straightforward and there are various reasons why the trustees choose to wind up before 80 years. Trustees need to ensure they have obtained legal and accounting advice about distributing trust assets, so that trustees do not incur liabilities.