Trusts in 2026: When They Still Make Sense After the 39% Rate

For decades, family trusts were a cornerstone of New Zealand tax and asset protection planning. Then the trust tax rate rose to 33%, and then to 39% — matching the top personal rate. For many trust owners, the economics shifted overnight.

If you have a trust, or are considering one, this guide explains what has changed, what still works, and what questions to ask your accountant.

Before the rate increase, trusts were commonly used to split income between beneficiaries at lower marginal rates. A business owner in the 39% personal bracket could distribute trust income to a spouse or adult children at 17.5% or 30%, saving meaningful amounts of tax each year.

At 39%, the trust itself pays tax at the same rate as the highest personal bracket. Income retained in the trust is no longer tax-advantaged. Distributions to beneficiaries are still taxed at the beneficiary's personal rate — but the trustee must now withhold tax at 39% unless the beneficiary provides their IRD number and confirms a lower rate applies.

The result: trusts that existed primarily for income splitting have largely lost their tax rationale.

This remains the strongest reason to hold assets in a trust. If you operate a business, face professional liability risk, or work in an industry where personal claims are possible, a trust can place your family home and other personal assets beyond the reach of creditors — provided the trust was set up well in advance and not as a response to an existing threat.

The key requirements for effective asset protection are:

• The trust must be genuinely independent — you cannot retain effective control over the assets
• Transfers into the trust must not be at undervalue or made to defeat creditors
• The trust must be properly administered — annual accounts, trustee resolutions, and genuine trustee decision-making

A trust that exists on paper but operates as if the assets still belong to you personally will not protect you.

Assets held in a trust before a relationship begins are generally excluded from the relationship property pool under the Property (Relationships) Act 1976. This is relevant for business owners who want to protect business assets, or for individuals entering a new relationship with significant pre-existing wealth.

This is a complex area — the rules around commingling and contribution mean that trust protection is not automatic. Get specific legal and accounting advice if this is your situation.

Trusts can be useful for passing assets to the next generation in a controlled way — particularly where beneficiaries are young, have different needs, or where you want to maintain some oversight over how assets are used.

A trust also avoids the public disclosure that comes with a will going through probate, and can provide continuity of ownership across generations without triggering a sale or transfer.

For business owners thinking about succession, see our post on succession planning for NZ small businesses.

Assets held in a trust may be excluded from the means test for residential care subsidies, provided the transfer was made at least five years before the subsidy application and was not made with the purpose of defeating the means test. This is a legitimate planning tool for older New Zealanders, but the rules are strict and the timing matters.

Where a trust holds rental property, losses can be distributed to beneficiaries who have other income to offset them against — subject to the ring-fencing rules for residential rental losses. This is a narrow use case and the rules are complex; get specific advice before relying on it.

If your trust was set up primarily to distribute income to lower-rate beneficiaries, the 39% trust rate has largely removed that advantage. You should review whether the ongoing compliance costs — accounting fees, legal fees, trustee time — are justified by the remaining benefits.

Trusts require annual financial statements, trustee resolutions for significant decisions, and careful record-keeping. The Trusts Act 2019 increased the obligations on trustees, including mandatory disclosure of trust information to beneficiaries. If your trust is not being properly administered, it may not provide the protection you think it does.

If you decide a trust is no longer serving its purpose, winding it up is not free. Transferring assets out of a trust can trigger tax events — particularly if the trust holds property that has increased in value. Get advice before you act.

1. Why was the trust set up, and does that reason still apply?
2. Is the trust being properly administered — annual accounts, trustee meetings, genuine trustee decision-making?
3. Are the compliance costs justified by the remaining benefits?
4. If the trust holds business assets, is there a better structure given current tax rates?
5. Has the trust been reviewed since the Trusts Act 2019 came into force?

Eastmure & Associates reviews trust structures as part of our business advisory work. If you have a trust that has not been reviewed recently, or you are wondering whether to wind one up, get in touch for a plain-language assessment.

For a broader introduction to trusts, see our earlier post on whether you need a trust as a NZ business owner.