Beneficiary Current Account Balances

Beneficiary Current Account Balances

Recent Trust law changes mean we are required to take a closer look at beneficiary account balances.

It is common for family trusts to make distributions to beneficiaries (often children) but if the distribution has only been partially paid to the beneficiary or not at all, the beneficiary will be building up a balance. This balance is treated as a loan to the trust and recorded as a beneficiary current account.

The new amendment means that the beneficiaries will be deemed settlors of the trust unless:

  • Their balance is less than $25,000, or
  • Prescribed (or higher) rate of interest is charged on the beneficiary current account.


Consequences of beneficiaries becoming settlors unintentionally is:

  • For the beneficiaries – Trust profit needs to be taken into consideration for working for families,  student allowance and WINZ benefits.
  • The tax residence of the settlors determines if the Trust is classified as a Complying Trust, a Foreign Trust or a Non-complying Trust, there is a potential for issues if a non-resident beneficiary becomes a settlor.
  • For non-resident beneficiaries – they could be subject to tax in overseas jurisdictions if they are deemed settlors of overseas Trusts – the Trust could be dragged into other countries tax, capital gains tax or inheritance tax schemes.
  • The new settlor could potentially become liable for the tax liability of the Trustee.


We recommend that you have a chat to your Client Manager to discuss implications of beneficiary current accounts you may have in your Trust.


This information is intended to provide general advice only.  We recommend you discuss your specific situation with your Accountant.