New Zealand Trusts: Wealth preservation in a tax efficient, OECD compliant manner

If the financial and economic climate of the past two years has taught us anything, we should be actively encouraging our clients to ensure that they have planned for their future wealth preservation and that that plan is up-to-date and compliant.

WEALTH PRESERVATION
Talk of wealth preservation plans can often result in glazed looks, but these needn't be complicated or cost prohibitive. One of the best methods for protecting assets and preserving wealth for future generations can be found in a simple family discretionary trust.

Established correctly, a family discretionary trust can ensure effective asset protection by segregating out a portion of a client's wealth from their sole personal control (and ultimately from the reach of their creditors and potential future claimants) while ensuring that family obligations and objectives are maintained - for example the provision and on-going maintenance of a house for the settlor's grandmother to live in. Alternatively, a client may wish to provide for future generations of the family by providing for the education of grandchildren, or to assist with the purchase of their first home.

While a trust structure can be simple, should the client needs require it, a trust structure can be flexible enough to accommodate many different adaptations. For example, the addition of a Protector, the creation of underlying asset holding vehicles in different jurisdictions, the appointment of co-trustees or the appointment of investment advisors or committees. As a flexible asset holding entity, client needs and specifications can be catered for in one tailor-made structure.

TRUST LOCATION
One of the criteria that is usually at the top of the list when determining the jurisdiction in which to locate a trust, is ensuring that it is tax efficient. Other pertinent criteria are that the jurisdiction is politically and economically stable, it has a well established system of trust law, it has a well respected judiciary and a high standard and availability of trust administrators and professionals. In 2009, one of the more important criteria that emerged when choosing a jurisdiction is that it is an OECD compliant, "white list" jurisdiction. New Zealand can tick all of these boxes.

A foreign trust that is established in New Zealand will not be taxable in New Zealand on any non-New Zealand sourced income. A New Zealand foreign trust is a trust that is established by a non-New Zealand resident settlor, with a New Zealand based Trustee and usually non-New Zealand resident beneficiaries. Importantly, New Zealand is not seen as a tax haven or an offshore financial centre. The tax exemption for the non-New Zealand sourced income derived by New Zealand foreign trusts has been part of the New Zealand tax legislation for over twenty years and resulted from the rules that were introduced for domestic purposes. It was not enacted to target the foreign market. Generally speaking, New Zealand is seen as a comparatively high taxing jurisdiction with extensive tax legislation in place. New Zealand is also an OECD compliant jurisdiction which was immediately placed on the OECD "white list" following the April 2009 G 20 meeting in London.

In addition, New Zealand has a growing status as an international trustee centre, with a well established system of trust law based on English common law and an internationally recognised judiciary.

While wealth preservation and asset protection objectives can be achieved using the fairly simple family discretionary trust, it is important to ensure that this is located in a tax efficient, OECD compliant jurisdiction. There is little point in putting a client into a structure aimed at preserving wealth, if that very structure could ultimately raise their profile with taxing authorities both at home and abroad merely because of a poor choice of jurisdiction.

As outlined above, a New Zealand foreign trust provides a tax effective wealth preservation structure located in a well regarded, OECD compliant jurisdiction.