-
Subscribe
Subscribed
Already have a WordPress.com account? Log in now.
A trust is wound up (brought to an end) when all of the trust’s assets are distributed to the beneficiaries or to another trust, either directly or by way of resettlement. Whether the trust is wound up early or because the trust has come to the end of its permissbile life (a maximum of 80 years for a non-charitable trust) certain formalities are required to record the end of the trust.
Care is also requried to establish whether any tax liability arises due to the transfer of assets when a trust is wound up.
Gift duty
Although gift duty was abolished with effect from 1 October 2011, any gifty duty liability incurred prior to that date will survive the end of a trust.
Loss of continuity
The continuity rules for shareholdings do not contain any exceptions that address a loss of continuity because a trust is wound up.
Capital distributions
Distributions of capital made on winding up the trust are treated as any other capital distribution and will be tax-free to the same extent as would have been the case for an earlier capital distribution. See classificaiton of trusts for tax purposes.
Any losses are lost when a trust is wound up
Any losses retained on winding up will be lost. There are no provisions that allow tax losses to be distributed to the beneficiaries when a trust is wound up.
Winding up the trust will cause the cessation of a taxable activity for GST purposes
If the trust is GST registered there will be a cessation of the taxable activity on or before the winding of the trust. A final GST return will be required and the trustees will need to de-register the trust from GST.
There are practical matters for a trustee to attend to when winding up a trust
The act of winding up the trust itself is normally the the result of a trustee resolution and may or may not also require a deed to effect the winding up.
Although there are limited if any legal formalities there are practical matters to attend to. These include:
Winding up a trust does not remove any liability a trustee has for tax
The trustee will remain liable for the trust’s tax liabilities following the winding up of a trust. Once the trust’s assets are fully distributed the trustee’s right to indemnity from the trust’s assets is practically limited. For this reason a trustee may wish to seek personal indemnification from the final beneficiaries for any shortfalls or liabilities in respect of any tax obligations, prior to making the final distribution of the trust’s assets. Where a beneficiary will not provide a satisfactory indemnity the trustee can apply to the Court for directions in this matter.
References:
Matters of Trust 
What if I don’t have any beneficiary any more how can I wind up the estate?. Since I’m a sole beneficiary can I transfer the left over assets to my name?
Quintus
Posted by Quintus | September 6, 2014, 6:25 amThe starting point for the answer to your enquiry is the deed of trust. As a general observation where a trust fails the trust’s assets result back to the trust’s settlor.
Posted by vickiammundsen | September 6, 2014, 9:36 pmPL GIVE DRAFT OF REQUISITE DEED OF WINDING UP TRUST AND GIVING AWAY ALL FUNDS ETC TO ANOTHER TRUST HAVING SIMILAR OBJECTS.
Posted by HARIHARAN PN | September 19, 2014, 10:20 pmBefore a trust can be wound up it is important to confirm that the trustees have the power to do so and whether the trust is being wound up earlier eg the vesting date is being brought forward or because the final vesting date has arrived. Each situation needs to be considered on its own facts and appropriate documents drafted. Legal advice should be sought.
Posted by vickiammundsen | September 21, 2014, 2:57 pmsir, what do u mean by appropriate documents?
in my case trustees have a power to do so..
Posted by suresh | September 22, 2018, 10:54 pmThe appropriate documents will depend on the terms of the trust. There may be a notice or consent requirement. Typically at the very least there will be a deed of distribution of the remaining trust assets, trustee resolutions and a deed to bring forward the vesting date (if this is being brought forward).
Posted by vickiammundsen | September 23, 2018, 1:02 pmHello, I am a Settlor and Trustee of a Family Trust with six members being Settlors and Trustees. For a Trust to be wound up, does it require a unanimous decision and all 6 signatures on the final Wind up. If there is only four members who agree to wind up the Trust and the other two refuse to sign, and the other four still go ahead and wind it up without the other two’s consent and signatures? Thanks appreciate your reply.
Posted by quincy | April 20, 2015, 11:44 pmThe terms upon which the trust can be wound up will likely be in the trust deed. Generally this would be a power reserved to the trustees.
Posted by vickiammundsen | January 2, 2017, 7:54 pmWhere there is no winding up clause in a trust, can the trust ever be wound up?
Posted by Rosie Purchas | May 19, 2015, 5:46 pmYes. However, it may be necessary to seek the assistance of the court.
Posted by vickiammundsen | January 2, 2017, 7:51 pmIf a Trust is being wound up because it is insolvent do the debts then fall on the trustee or all beneficiaries?
Posted by Meagan | July 22, 2015, 1:37 pmBeneficiaries are not generally responsible for trust debts (unless indemnities have been given). While trustees as the legal owner of trust property are generally liable in the first instance for trust losses, each case turns on its own facts.
Posted by vickiammundsen | January 2, 2017, 7:30 pmWhen winding up a trust, do the beneficiaries have to sign their approval as well as the trustees?
Posted by Karen | May 30, 2016, 4:20 pmThe trustees may seek the consent of the beneficiaries. However, if the trustees are exercising a discretion the consent of the beneficiaries will not generally be required unless the terms of the trust provide otherwise. That said, it may be prudent of the trustees to obtain consent.
Posted by vickiammundsen | January 2, 2017, 5:43 pmHow long does the winding up process usually take? e.g from time of death to assets received by beneficaries
Posted by smo | January 23, 2017, 12:01 pmA trust does not generally have to be wound up only because a settlor or related party has died. We suggest that you direct this question to the trustees
Posted by vickiammundsen | January 23, 2017, 5:11 pmCan you confirm I am understanding this correctly. I have a trust that I am transferring to another trustee. For tax purposes, I record the trust as being in its final year and formally wind it up, because from a paperwork perspective “my” trust is winding up, even though the funds are remaining in trust under a different trustee?
Posted by Amanda Stokes | February 1, 2017, 6:46 amIt is not clear from your comments whether you are winding up a trust or removing a trustee and appointing a new trustee to the same trust. We recommend legal advice.
Posted by vickiammundsen | February 1, 2017, 9:40 pmIf I wish to wind up a trust that the family home is in, is the home assessed on the amount it was originally gifted for, or does it have to be market value – i.e. would I have to use savings to make up the difference?How does that work? I have become aware that, when our gifting over the few years was set at the $27k for me, and the same for my husband ($54k in total) that if my husband and I were to need resthome care, Work & Income will only include gifting of $27 per annum, not $54k. That would mean the $27k per annum would be taken as assets and would mean that we would not get a subsidy. Which would certainly mean we’d have to sell our home.I wonder if others who have their family home in a trust to protect assets are aware of this?
Posted by Di Trower | May 15, 2017, 11:59 amIf the trust’s sole asset is the family home (and the trust has not earned any income and is a complying New Zealand trust) and residential care subsidies are your only concern, a “trust reversal” may be a consideration. We recommend legal advice as you need to appreciate how gifting would apply to your circumstances. From your question, you appear to have some misunderstanding regarding how gifting would apply. This comment cannot be considered advice.
Posted by vickiammundsen | May 16, 2017, 1:35 amWe have my mothers home money in a trust and want to close the trust to put towards building a house for mum to live in will this be straight foward to do or how do we do this.
Posted by Lisa | May 18, 2017, 8:52 amThe starting point is to review the terms of the trust to see what is permissible. It would also be sensible to consider why the trust was settled and what risks the funds might be subject to if owned by your mother. Legal advice is recommended.
Posted by vickiammundsen | May 25, 2017, 12:21 amIf The Trust has no capital but does own assets how are the assets transferred when the Trust is wound up?
Posted by Margaret Jones | February 10, 2018, 12:37 pmA trust is wound up after all of the trust’s assets have been distributed.
Posted by vickiammundsen | February 11, 2018, 11:55 amMy husband & I are considering winding up our family trust as it is no longer needed. We were in business when we set the trust up but aren’t any longer & find it is now just a hassle. What are the implications of doing this – tax wise etc, thanks
Posted by Chris | February 17, 2018, 4:26 pmYour starting point is to review the trust deed to establish what the extent of settlor and trustee powers are. For example, is there a power of revocation or a power to bring forward the vesting date? Accounting advice will be required from a tax perspective to establish what the tax cost of winding up the trust will be. For tax purposes the distribution of assets in the tax base that are transferred out of trust will generally be treated as a sale to a third party at market value. If there is any property that has been acquired within the last two years, the application of the bright-line test will need to be considered. If, after taking advice, the trustees decide that the trust is no longer required they will need to decide how the trust’s assets are to be distributed. Legal and accounting advice is recommended.
Posted by vickiammundsen | February 18, 2018, 11:50 amI wish to wind up a trust with nil assets . A nil tax return has been filed annually.
Posted by Jean | April 5, 2018, 6:31 pmMy mother is wanting to wind up her family trust in New Zealand but she has an acknowledgement of debt for $134000.00. Can we close this and wipe this as trustees and beneficiaries are all happy to get this closed as mum lives in Australia now . Is there something we can all sign waiving debt? or will this stop us being able to close. Mum is now 85 and wanting to make a new will in Australia and has wished to close this family trust for a while .
Posted by Sue Barr | June 2, 2018, 7:02 pmYour mother may wish to forgive the outstanding debt (we presume that this debt is owing to her form the Trust). However, before doing so she will need to seek advice as to any tax or other consequences that might flow from that forgiveness such as whether forgiving that debt could affect her entitlement to any means tested benefits. Legal and tax advice is recommended regarding the steps required to wind up the trust.
Posted by vickiammundsen | June 3, 2018, 12:55 pmThe debt was actually mums who is a trustee but not a beneficiary of the trust. Does this alter who can forgive the debt ? Her 3 children are all beneficiaries and 2 of 3 are trustees.. The acknowledement of debt was nil interest.
Posted by Sue Barr | June 4, 2018, 10:13 amHi, my wife and I currently have a trust set up in NZ. We did so on the basis of potentially purchasing property in NZ but this plan did not go ahead. We had a few questions:
1. Can we just keep the trust open without needing to file a tax return each year given we have no assets within the trust?
2. If we couldn’t do 1, which is the most simplest way to close the trust given there are no assets within the trust?
Thanks so much in advance.
Posted by Michael | May 15, 2021, 6:09 pmLegal advice is recommended.
Posted by vickiammundsen | May 16, 2021, 10:30 pmYou need to identify the parties to the debt. Legal and tax advice is recommended.
Posted by vickiammundsen | June 4, 2018, 11:51 amHI Vicki, my parents have had a ‘family trust,’ of which both my parents were the trustees. There are three beneficiaries of which I am one and there has been (in the past) money borrowed and gifted disproportionately to all three of us.
My father has recently passed away and my mother wishes the trust to be wound up as she doesn’t want the stress of understanding how the trust works. Since Dad’s passing, I have been appointed the new trustee, along with my mum. Before Dad passed away, (which was two months after the end of the financial year) he paid up the taxes for the trust in April. I have a couple of questions to ask:
1) What taxes do we face paying upon the trust’s closure? 2) Is this sum proportionate to the amount left in the trust? 3) Should this ‘tax’ be paid from the final amount, before everything is divided to its beneficiaries? 4) Our lawyer has told us three beneficiaries what we must each ‘owe’ the trust, from our past gifts and borrowing – but if the trust is to be wound up – then is this to be paid back before, and to whom? 5) My mum also does not want any of us ‘owing each other’ because of what the family trust stipulates, and just wants the total sum to be divided ‘equally.’ This seems unfair to the beneficiary who has had the least support, but Mum says that person will not mind and will not challenge her decision, as her decision is final.
I understand her wants and am trying to do what needs to be done, but it’s not as simple as what she wants. I want to be as informed as possible so thanks in advance for your help.
Posted by VEENA SOMA-BARRON | August 26, 2018, 5:37 pmThank you for your question. The answer to your questions will depend on the jurisdiction of the trust and the beneficiaries. Tax and legal advice is recommended.
Posted by vickiammundsen | October 15, 2018, 9:29 pmHello, we have a family trust and wish to wind it up. There is a rental property in the Trust generating a tax paid profit. This rental property is held in a company on behalf of the Trust and the Trust receives the income which has historically then be distributed to beneficiaries. The current shareholder (Trustee) of this company is the desired beneficiary of the property that is to be distributed. In this case what would the process be to transfer the property? Can it remain in the current company and then going forward the income be collected and returned for tax purposes by the company instead. Would there be any ‘bright line issues’?
Posted by Claire | August 27, 2018, 2:16 pmThank you for your question. The starting point is to consider the terms of the trust and the fiduciary obligations owed to all of the trust’s beneficiaries. There can be tax consequences when a trust is wound up. These can include, but are not limited to bright-line test considerations. Legal and accounting advice is recommended.
Posted by vickiammundsen | August 27, 2018, 11:02 pmA settlor and trustee (now retired) has gone into care and the trust’s sole asset, a small house, has been transferred to the new trustees (the settlor’s children). There is a trust debt of $219,000 unforgiven by the settlor. What should be done about this debt?
Posted by Kathy | August 28, 2018, 2:07 pmBefore a decision can be made about the debt, matters to consider include – does the settlor have capacity? If not has an attorney been appointed by the settlor under an enduring power of attorney (and if so is there a power to forgive debt?). What other assets does the settlor have? Does the settlor need to have recourse to the $219,000 unforgiven debt? How is the settlors care being funded? Are there residential care subsidy (or other means tested benefit) considerations? Legal advice is recommended.
Posted by vickiammundsen | August 29, 2018, 11:11 pmCan a trust be wound up that has properties but the mortgages can’t be met and the financier is refusing to acknowledge this after many letters being sent to them.
Posted by Phil | November 1, 2018, 5:50 pmThank you for your question. Trustees act personally and cannot avoid liabilities to third parties simply by winding up a trust. Legal advice is strongly recommended.
Posted by vickiammundsen | November 1, 2018, 9:53 pmI am one of two Trustees (both beneficiaries) in a long-time family Trust which we both are considering winding up sometime in the future. There are 5 other beneficiaries of this Trust being our children. There is only one house in the Trust. When that is sold and the Trust is wound up, is it the law that we need to share the Trust’s money equally with our 5 children between us (the other beneficiaries?)
Posted by Sarah Hindman | November 17, 2018, 2:33 pmThe starting point is to review the terms of the trust deed to establish what powers and discretions the trustees have. This needs to be considered from two perspectives. The first is while the trust continues (as it is now); and the other, from the perspective as to the position if the trust is wound up. Legal advice is recommended.
Posted by vickiammundsen | November 17, 2018, 4:43 pmAre the trustees obligated to distribute any finances amongst the discretionary beneficiaries?
Posted by Gail | November 29, 2018, 2:32 pmThe trustees’ obligations will depend on the terms of the trust and whether or not the trust has vested (if a discretionary trust).
Posted by vickiammundsen | December 2, 2018, 2:21 pmwhen funds have been taken out of a trust as a gift must those funds be returned to the trust before the trust can be wound up or dissolved?
Posted by Sharon gray | December 13, 2018, 9:06 amDistributions made from a trust should not be required to be repaid when a trust is would up. However, any loans made by the trustees will need to be accounted for. Legal and accounting advice is recommended before a trust is wound up.
Posted by vickiammundsen | December 13, 2018, 4:27 pmI would like to Know about How to legally Shut down a Settlement Trust for Miss Representation and False Database issue
Posted by Sammy Williams | February 4, 2019, 1:16 pmLegal advice is recommended.
Posted by vickiammundsen | February 4, 2019, 11:02 pmOnce I have ticked off all the requirements before closing an estate trust, where do I send the details to formally close the trust?
Posted by darnewbie | February 25, 2019, 1:55 pmThe requirements will depend on the nature of the estate’s assets and beneficiaries and the relevant jurisdiction. Legal advice is recommended.
Posted by vickiammundsen | February 25, 2019, 9:12 pmI have had money (from sale of property) left to me in a trust from my father who died in April 2018. The Vesting date stated in the Will was to be the first of 3 occurrences: my mother left the family home; my mother remarried; my mother passed away. My mother actually left the family home and moved into my sisters home prior to my father’s death. Does that mean the trust could be disbanded as the Solicitor refuses to do this?
Posted by Gary Fentiman | September 24, 2019, 5:44 amThank you for your question. The correct legal position will depend on the terms of the trust. We recommend that your legal adviser communicates with the trustees.
Posted by vickiammundsen | September 24, 2019, 8:54 amSir, We have a family Trust and have non family members Trustees to take care of the operations of the trust. Out of three settlers of the trust one settler has passed away three years back. As per Trust Deed, it can be wound up by passing a resolution by the trustees after taking the consent from the settlers, which can be taken without any hassle. No vesting date is there. On the basis of facts It looks that the trustees have the power to do so.
I would feel obliged if you send me the complete process of winding up and necessary formalities to be fulfilled with respective departments.
warm regards
Jyoti
Posted by Jyoti Sharma | January 7, 2020, 11:21 pmLegal advice from the jurisdiction in which the Trust is governed is recommended.
Posted by vickiammundsen | January 7, 2020, 11:56 pmHi there,
I am a Beneficiary and one of two trustees, I am having issues with the other trustee who is not a beneficiary as to what should be done with the trust and therefore nothing can be done because we cannot come to an agreement, but as the beneficiary I don’t think I have grounds to remove the trustee. my question is: Do I have the ability to wind up the trust as a beneficiary and if so are there any tax implications in doing so if all that is in the trust is a property?
thank you.
Posted by Dave | February 6, 2020, 9:39 pmHello Dave
If all of the beneficiaries of a trust are sui juris (adults and competent) and in agreement, the beneficiaries can direct that the trust is wound up and the trust property distributed. See https://mattersoftrust.co.nz/2019/03/20/saunders-v-vautier-2019/. With respect to any tax consequences, you will need to get accounting advice.
Posted by vickiammundsen | February 8, 2020, 2:10 pmHi vicki when you say all adult beneficiaries can consent to winding up trust. Does this mean all beneficiaries such as discretionary and final beneficiaries
Posted by Shiree | April 17, 2020, 9:11 pmThe rule in Saunders v Vautier requires consent from all beneficiaries so that would mean discretionary and final.
Posted by vickiammundsen | April 18, 2020, 1:19 pmWinding up a Trust: CRA T4013 T3 Trust Guide 2019 states that for a graduated rate estate, the tax year will end on the date of the final distribution of the assets. For and inter vivos trust or a testamentary trust (other than a graduated rate estate), you have to file the final T3 return and pay any balance owing no later than 90 days after the trust’s tax year-end. If an Alter Ego Trust has a year end of Dec 31st and the settler dies on February 1st, the trust has a deemed year end of February 1st. Does it have to file the final T3 and pay the taxes owing 90 days from February 1st or is the period to file and pay the taxes (if any applicable) extended to the regular year end of the Trust – December 31st. Since it’s a deemed year end, the guide is not clear if it refers to the deemed year end or the regular year end.
Posted by Bob | May 14, 2020, 8:47 amThank you for your question.
You are referring to a Canadian Trust Guide. This blog is written in New Zealand and focuses primarily on New Zealand trust and tax law. We recommend that you get legal or accounting advice in Canada.
Posted by vickiammundsen | May 14, 2020, 12:34 pmHello vicki
If the main family trust owns other assets houses, property etc through ltd laqc companies (for tax losses to flow back to the main company ), then if the assets in those outside companies are worth less than was paid for for them do the beneficiaries wear this loss in value ? Furthermore if any of the beneficiaries are shareholders in the outside companys do they wear the losses individually ?
Posted by Mary scott | June 17, 2021, 6:29 amHi, I am winding up our family trust & all the assets have been transferred to the beneficiaries so there is no longer any income.
IRD have asked for a “copy of the accounts” to date of cessation. What exactly do they mean?
I have a register of assets & the minutes showing the assets have been distributed is this what they want?
Thanks Philip
Posted by Philip Roach | August 8, 2021, 4:32 pmIRD will be wanting to see the Trust’s financial statements. Accounting advice is recommended.
Posted by vickiammundsen | August 8, 2021, 5:51 pmAre there any rules on what trust documents should be retained after the trust is wound up and the trust property is distributed? Should copies of trust documents be retained?
Posted by Caitlin | December 9, 2022, 4:27 pmThe Trusts Act 2019 does not specify, which means that the prudent approach is to ensure an appropriate retention policy following a trust wind up.
Posted by vickiammundsen | December 12, 2022, 2:20 amWhat does it mean that a Trust make a capital distribution being debt owed by company to the trust
Posted by Tess McCain | August 17, 2023, 7:43 pmYou are asking whether a trust can make a capital distribution to offset a debt. In the first instance it is necessary to determine whether the company is a beneficiary. Accounting advice is recommended.
Posted by vickiammundsen | November 11, 2023, 4:12 pm