Another impact, on the parents, is that having offspring in overseas jurisdictions poses thorny issues if you have a Trust, or you decide to gift or loan money to help the children establish themselves in London or wherever they are heading.
Another impact, on the parents, is that having offspring in overseas jurisdictions poses thorny issues if you have a Trust, or you decide to gift or loan money to help the children establish themselves in London or wherever they are heading. Not many kids will say no to their parents’ largesse – but this could bite the parents. Where children are beneficiaries of a Trust, their residency can raise tax or compliance consequences. There are lots of fish hooks in the ocean of international taxation.
"Having offspring in overseas jurisdictions poses thorny issues if you have a Trust."
In common destinations such as the US, UK and Australia, each have their set of rules with regard to their residents. Be mindful of this if you have a Family Trust designed to support your children.
- For USA, if your child becomes a US citizen or US tax resident their worldwide income is assessed by the IRS, including disclosure if they are a beneficiary of a NZ Trust along with declaring in their US tax returns any distributions received from the Trust.
- For UK, if the New Zealand based Trust has UK resident beneficiaries, that fact can trigger the Trust to register with the UK tax authority. Also, the dividends received from any UK shares held by Trust may become taxable to the trustee at the UK’s rather steep income tax rate of 45%.
- Most Kiwis going to Australia will be temporary residents and as a beneficiary of a Trust, there are no tax or compliance implications. But if the Kiwi happens to become an Australian citizen or marries an Australian citizen or permanent resident, in some instances any capital distribution by the Trust may be included as assessable income.
Generally speaking, Trusts are problematic to overseas jurisdictions, so it is important to seek advice on whether it may be better for overseas based beneficiaries to receive inheritances instead via your Will. So, if your youngsters are leaving the nest don’t pop the Champagne just yet. As with every change in life stage we recommend reviewing your situation with your financial adviser, lawyer and accountant to make sure that neither they nor yourselves are exposed to unnecessary tax or compliance implications.
It wasn’t intentional to add a story about the Korean movie Parasite in the same issue as we talk about kids leaving home – so please don’t read anything into the coincidence. We just wanted to rave about the movie which centres on a family of lay-abouts who ingratiate themselves into the lives of a rather spoilt family who are quite at ease treating their servants like dirt. So just who are the parasites? The film clicks together as subtly as a puzzle-box and the tension gets more intense. That’s when a big plot twist occurs, we won’t give it away, but everything comes badly unstuck. Parasite has had a good run in the cinemas and is also worth looking for on the Netflix’s of this world. Warning: there’s a generous splatter of blood at the end. That’s what happens when people don’t use their money wisely.
New rules for Trusts
The role of Trusts has been under close Government scrutiny for the past year or two, and the revisions have now been enshrined in the Trusts Act 2019. This is the first overhaul in sixty years of family trusts and how these must operate. Here are four implications:
- Greater onus on trustees. The Act provides for five mandatory trustee duties that cannot be excluded from a trust deed.
- Clear rules about telling beneficiaries about the Trust and when trustees are required to provide them with regular information.
- Practical and flexible trustee powers that allow trustees to manage and invest trust property in the most appropriate and prudent way. With this freedom comes exposure to disputes.
- Need for modern dispute resolution procedures. The new law will come into force on 30 January 2021. If you have a family trust we recommend you review your situation to see how the changes will affect you.