Winding up a Trust

Winding up a Trust

When a trust is at the end of its life, no longer fulfilling the purpose intended or hopelessly insolvent it may be time to wind the trust up.

Where receiving rest home subsidies was the motivation for forming the trust, the trust needs to be revisited as rules have changed regarding gifting and it could well be that your trust will no longer work for this purpose. It is also good to consider where your trust sits in terms of future estate planning.

If trustees move overseas, the trust could become a tax resident of another jurisdiction, so in this case you would also want to review whether a NZ trust is appropriate.

Regardless of the reason for winding up a trust, a process needs to be followed to ensure you have covered all bases.

When winding up a trust, trustees can be liable for any debt or claims on the trust even after assets have been distributed. So, it is important that any debts and contingent liabilities are taken into consideration and that includes any potential claims by illegitimate children.

To minimise risks to the Settlors and Trustees a lot of due diligence and documentation of decisions needs to be completed. Resolutions need to be completed and these documents need to be kept indefinitely.

A memoranda of the wishes of settlors is something that all trusts should have. This is a document in which the settlor sets out to the trustees how they want their trust managed and its intended purpose. On winding up the trust the memoranda of wishes should be taken into consideration along with the Trust Deed.

When winding up a trust, you will also want to consider whether wills or power of attorney’s need to be amended.

Fours ways to wind up a trust are:

  • A trust can ben wound up by the final beneficiaries in accordance with the rule in Saunders v Vautier
  • A trust can be wound up in accordance with power or revocation (uncommon in NZ)
  • A trustees discretion (if they have these powers)
  • The high court has power to wind up a trust

If you are considering winding up your trust, please contact us for further information.