Many New Zealand families have children or grandchildren living overseas, particularly in Australia. What is often overlooked is that a beneficiary’s country of residence can have a significant impact on the tax consequences of trust distributions and inheritances.

Issues can arise when a trust is being wound up following the death of a parent or surviving settlor. Trustees are then tasked with distributing trust assets in accordance with the trust deed. On the surface, the process may appear straightforward.

However, where beneficiaries live in different countries, the outcome can be quite different from what was intended.

Imagine Mum and Dad’s family trust holds $1 million of assets and, following their passing, the trustees intend to divide those assets equally between their two children. One child lives in New Zealand, while the other has been living in Australia for several years. On paper, each child may receive $500,000. However, the after-tax outcome may not necessarily be the same.

While there are currently no New Zealand tax consequences, overseas tax rules can produce a very different outcome. In Australia, for example, a beneficiary who receives funds from a New Zealand trust may face tax obligations that would not arise if they were living in New Zealand.

In some cases, the tax cost for an overseas beneficiary can be significant i.e. 45%. As a result, an inheritance that appears to be divided equally between beneficiaries may produce very different outcomes once overseas tax rules are taken into account.

Importantly, it is not just direct trust distributions that should be considered. Loans, forgiven debts and other arrangements can also create unintended tax consequences overseas. That is why it is important to obtain specialist advice before implementing an estate plan or making significant distributions.

The reality is that many trusts were established years ago when all family members lived in New Zealand. Today, it is increasingly common for children and grandchildren to live permanently overseas. A trust that has operated without issue for decades can suddenly have cross-border tax considerations when the time comes to distribute assets.

That is why estate planning should involve more than simply deciding who receives what. It is equally important to understand what each beneficiary is likely to receive after tax and whether that outcome aligns with your intentions.

At CooperAitken, we regularly work alongside our clients’ solicitors and other professional advisers to review trust structures, wills, estate plans and succession arrangements. Bringing advisers together around the table early can help identify potential issues, consider available options, and ensure decisions are made with a clear understanding of the likely outcomes.

After all, good estate planning is not just about dividing assets equally. It is about making sure the people you wish to benefit receive the outcome you intended.

Is It Time for a Trust and Estate Planning Review?

If you have a family trust and one or more beneficiaries live overseas, now may be the perfect time to review your arrangements. A proactive review before distributions are made can help avoid surprises and provide peace of mind that your plans will work as intended.

Speak with the CooperAitken team about your trust and estate planning arrangements. Together with your solicitor and other professional advisers, we can help you understand the likely outcomes for your beneficiaries and ensure your family’s wealth is passed on as intended.