“The most common reason to establish a trust is to manage the succession of assets and wealth between different generations of a family,” says Mitchell.
“In many cases, parents simply have a concern about passing significant sums to children outright and don’t want the inheritance to be dissipated. If you leave your assets directly to your children in your will, your children will have complete control over those assets after your death and can spend it on whatever they wish.”
This is obviously undesirable in the event that parents die when children are still very young and not necessarily responsible enough to manage their finances.
The issue of trusts has made headlines in recent weeks for a number of reasons. First, a major IRD report revealed that extremely wealthy people were earning most of their money through trusts. Then, shortly afterwards, the Government announced an increase in the tax rate on trusts. Deloitte tax partner Robyn Walker tells The Front Page that this small law change could have a significant impact on the many Kiwi families who use trusts.
“When you look at the statistics of the makeup of trusts in New Zealand, it’s a relatively small number of trusts that actually have significant amounts of trustee income,” says Walker.
In a bid to capture the wealthy New Zealanders who use trusts, Walker warns that changing the tax rate from 33 to 39 per cent could see hundreds of thousands of average Kiwis become “collateral damage”.
So how much more will Kiwi families have to pay? And who is likely to be caught in the crossfire?
Listen to the full episode of The Front Page to hear the full details from Mitchell and Walker.
The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am.
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