Should I be using a trust? When a family trust is the right move?

Search "family trust NZ" and you'll drown in law-firm pages all answering the same generic question: what is a trust? That's almost never what a household actually wants to know. The real question is sharper and more personal — should I be using one, and if so, when?

And under that sits what most people are really weighing: is a trust good for the tax efficiency, the protection, or both? Those two things — saving money and keeping assets safe — are what the decision comes down to, and they shape the rest of this piece.

It's also a question most Kiwis ask their financial adviser or property strategist long before they ever sit down with a lawyer. The "should we?" conversation happens at the kitchen table and in the adviser's office; the legal setup comes later. So we put it to three New Zealand advisory firms who field it every week — two of them deep in investment property, one holistic — and asked them to tell households the truth about when a trust earns its place, and when it's just expensive paperwork.

The panel: Lighthouse Financial and Opes Partners, both property-investment-weighted, and Naked Finance, a holistic financial practice.

What's changed — and why this is now a "do I need the friction?" question

A decade ago, as Opes Partners' Ed McKnight puts it, "every man and his dog had a trust." That default has quietly collapsed, and three regulatory shifts explain why.

The Trusts Act 2019 rewrote the housekeeping. According to Lighthouse Financial's Trust Manager (and solicitor) Vaishnu Krishnan, it "changed the disclosure requirements around trusts, meaning it became harder to 'hide' trust information from beneficiaries." It also "made record keeping stricter," and trustees "cannot simply make decisions without exercising their mind a little." His practical read: clients now have to weigh whether disclosing the family's asset position to their children "affects family harmony," and those unwilling to shoulder the admin "are looking at independents as their trustees."

Then there's the 39% trustee tax rate, in effect since 1 April 2024. The detail that matters for households is what the rate actually applies to. It taxes the income a trust retains — earnings left sitting inside the trust rather than paid out. Income the trust distributes to an adult beneficiary is still taxed at that beneficiary's own marginal rate, which starts at 10.5% and only reaches 39% on personal income above $180,000. So the long-standing move — allocating trust income to lower-earning family members so it's taxed at their rate — still works exactly as it did. The 39% is the price of parking income inside the trust, not of passing it through to the people it's meant for.

That distinction is why the panel's advice has barely moved. "The trustee tax rate might be 39%," says McKnight, "but when you distribute any cash flow out to the beneficiaries of that trust, it is taxed at their marginal rate. So it hasn't changed the advice too much." Krishnan makes the same point from the other side: the underlying "tax benefits" remain "the same as in the past," with the one real shift being that clients now "need to consider the retention of income within trusts" rather than assuming they can bank earnings cheaply at the trustee level. Naked Finance's Jamie puts the sharpest edge on it — for a household whose only reason for the trust was to shelter income, and who then leaves that income sitting in the trust, the 39% rate strips much of the point out of the structure. If tax was the sole motive, there's little left to justify the admin.

Finally, tighter IRD disclosure means, in Krishnan's words, "settlors and trustees need to be more transparent with what they are doing with trust funds and specifically where distributions are going." The throughline across all three regulatory changes is the same: more friction, more cost, more transparency. None of it kills the trust as a tool, but it raises the bar for needing one.

When a trust is the right move: is it tax, or protection?

Strip the question back and almost every household weighing up a trust is really asking about one of two things: tax or protection. Will it save us money? or will it keep our assets safe? They sound related, but the panel treats them as separate questions with separate answers — and conflating the two is how people talk themselves into a structure they don't need.

Reason one: tax efficiency

The tax case for a trust is, at its heart, income splitting — directing income to family members on lower tax rates so less of it is lost to tax. As above, income a trust distributes is taxed at the beneficiary's marginal rate (10.5% up to 39%), so the benefit only switches on when two things are both true: the trust is throwing off surplus income to distribute, and there are beneficiaries on lower rates to receive it.

That's why, for property investors, the panel sees a trust as a structure you graduate into rather than start with. McKnight describes the typical arc: "We typically see investors start by investing through their own name. Then they might graduate to a look-through company. And then, as their portfolio matures and is generating cash flow, they might transition to a trust." The trigger is usually "their third or fourth investment property" and a portfolio that has tipped into positive cash flow — because that's the point the income-splitting benefit starts to outweigh the admin: "a trust allows you to distribute income out to the different beneficiaries in varying amounts. If you have a partner who is not working and has a low tax rate, you can distribute more income out to them."

Krishnan puts the same mechanic plainly: the benefit "lies in being able to make distributions to beneficiaries at lower marginal tax rates than the 39% trustee rate." The flip side — covered in the wrong-tool section below — is that if the trust isn't generating surplus income, or everyone in the family is already on the top rate, the tax reason falls away and you're paying to run a structure that isn't doing anything.

Reason two: protection

The protection case is a different question, and it's the one the panel rates more highly in 2026. Here, a trust does something no tax structure can: it changes who legally owns the asset, putting it a step removed from personal risk — a creditor, a lawsuit, a relationship split, or a beneficiary who can't yet be trusted with the money.

For Lighthouse, this is the main event. "Asset protection should be the key focus when looking to set up a trust," says Krishnan — "primarily, if you are keen on protecting assets for future generations of your family, or if you are concerned about your children wasting away an inheritance." His archetype: "people with children that are in their late teens / early twenties — and they want to protect them from future relationship breakdowns."

On the property side, the protection trigger is usually business ownership and the legal risk that rides with it. If an investor "is a business owner," says McKnight, "then they will gravitate towards a trust to protect their investment properties from the risk of legal action" — and in that case a trust "might be appropriate from the start," even on a first property. Naked Finance's Jamie frames the same instinct around the family home: a trust earns its place where "you have personal guarantees or liabilities against a company and you want to protect your family's home."

Protection also stretches across generations. Jamie's strongest "yes" is a trust built to hold and pass on family capital: "one of the best uses of a trust is when you have a family trust that is set up for inter-generational wealth, where it pays distributions to beneficiaries over the years. You can have $10 million invested with a properly executed investment plan… that provides an income to the beneficiaries that can be distributed on an annual basis without eating into the capital." That's protection and control of capital over time — a job a will alone can't do. And it's where the structure choice bites: an LTC, Krishnan notes, "is the most common vehicle for holding investment properties but doesn't offer the succession planning flexibility of a trust."

When it's the wrong tool

The panel is just as direct about who shouldn't bother. "For most investors, they are not necessary and come with additional compliance costs," says McKnight. "So setting up a trust is not the default option for most investors who earn a salary and are buying their first investment property."

Jamie is blunter still: outside genuine asset-protection or intergenerational cases, "for mum and dad investors, a trust really is just unnecessary complexity" — and that complexity "comes with costs: end-of-year reporting for taxation, accountant's fees." Krishnan's rule of thumb: "If your estate is simple and your family dynamics are uncomplicated, you can often deal with a Will only and not a Trust."

The test the panel would run before you book the lawyer

Drawn together, the three firms' pre-legal checklist looks like this:

• What are you actually trying to achieve, and why? Krishnan: if the honest answer is "asset protection or greater tax efficiency," a trust may fit. He'd then drill into specifics — "Do they have children with financial immaturity or a disability? Do they have significant assets that they don't want forming part of their children's relationship property? Are they part of a blended family? Are they paying tax at a higher rate than their intended trust beneficiaries?" If you can't point to something concrete, that's your answer.
• Do you really need it — or are you adding complexity for its own sake? Jamie's four questions: "Do you really need it? Why are you even considering it? What benefits do you assume you are going to get from it? Are you… making things more complex than it needs to be and just adding another bill at the end of the year?"
• What does your portfolio and risk picture look like? McKnight: "How many properties do you currently own? How much positive cash flow do your properties currently generate? Do you own a business or have other legal risks?"
• Are simpler structures enough? A will, a contracting-out (s21 / "prenup") agreement, joint ownership, or KiwiSaver beneficiary nominations may do the job for a fraction of the ongoing cost.

The biggest misconception clients arrive with

All three firms hear versions of the same myth: that a trust is a magic shield and the assets are still really yours.

"They confuse 'ownership' and 'control,'" says Krishnan. "Once the assets are settled in the trust they no longer 'own' them and the 'control' lies with the trustee… Clients often need to be educated that they can't simply shift the ownership to another entity and continue to treat it as if it's their own piggybank." A trust can even be ruled a "sham" if the settlor, trustees and beneficiaries "are one and the same" — and it "still needs to be paired with a robust Will and potentially a s21 / contracting out agreement," because it won't defeat all relationship-property claims. Jamie puts the same misconception simply: people think it offers "ultimate protection… that their property is still 'theirs,' but in reality, in a legal sense, it is owned by a separate entity."

The "we already have one" question

If you set a trust up years ago for a reason that no longer applies — the business is sold, the kids are grown, the 39% rate has eaten the tax angle — it's worth revisiting. As Lighthouse's Managing Director Matthew Harris notes, trusts "remain valuable structures if used properly" — the operative words being if used properly. A dormant trust that no longer serves its original purpose is just an annual bill.

Seeing the whole picture — SortMe

Whether you hold property personally, in an LTC, in a company, or in a trust, the hard part is seeing it all in one place. SortMe's entity management feature tracks assets and liabilities across multiple structures, including trusts, so you can see what each entity actually holds without having to stitch together spreadsheets.

SortMe also helps you with end-of-financial-year accounting by pulling together all relevant information, including opening and closing balances, transactions, receipts and notes, all into one export file for your accountant.

That tagging is what makes it pay off at tax time. Every transaction can be assigned to the entity it belongs to — even if you've paid from your personal credit card. Put a repair for the investment property on your own card, tag it to that property's entity and attach the receipt. The deduction is captured rather than forgotten by 31 March. Done as you go, SortMe turns end-of-year from days of reconstruction into a clean handover — and means far fewer deductible expenses slipping through the cracks.

The bottom line

Advisers answer should you and when; lawyers and accountants execute the how. On the evidence of three firms that field this question every week, the honest 2026 answer for most households is: probably not yet, and maybe not at all — unless you have a specific asset to protect, a business creating real legal risk, a blended family, or genuine intergenerational wealth to pass on.

If one of those is you, talk to your financial advisor. Or we can match you with one.

Sources: Written responses from Lighthouse Financial (Vaishnu Krishnan, Matthew Harris), Opes Partners (Ed McKnight) and Naked Finance (Jamie), May–June 2026. Trusts Act 2019 (legislation.govt.nz); IRD guidance on the 39% trustee tax rate and trust disclosure rules.