Does your family trust need financial statements?

10 June 2019

< back to Knowledge Library

Does your family trust need financial statements? In a word: yes.

For several more words why your trust needs financial statements, read on

If any trust earns an income, including a family trust, the IRD expects you to prepare financial statements and file tax returns. If the IRD expects you to do something, you really should do it.

To meet these expectations, good record keeping is essential. This will help your trust prepare accurate financial statements. From these, your tax returns can be compiled and all trustees can stay on top of their taxation responsibilities. One of the most important things to include is bank statements which provide evidence of all transactions the trust has engaged in.

What if your trust does not produce an income?

What if it is simply holding a passive asset e.g. the family home? Our advice is to have financial statements prepared anyway. I can hear you from here: “Of course he’d say that. He’s an accountant!” But hear me out. There are many benefits to preparing financial statements for your trust regardless of income. They will give you an overview of a long list of things, including:

  • Advances made by settlors to the trust
  • Loans made by the trust
  • The gifting position
  • Assets held
  • Liabilities incurred

It’s also important to note that financial statements also help you satisfy your duty when accounting to the trust’s beneficiaries. This alone is a good reason to have statements prepared regardless of the situation.

To be blunt, trust management in New Zealand could be better. Much of this comes down to total ignorance of the state of play. Prepared financial statements could help trustees get up to speed and avoid issues. They’ll highlight how much protection your asset-protecting trust is actually providing.   

In short, whether your trust generates an income or not, we think you need prepared financial statements. And, under proposed new laws relating to trusts in New Zealand, that need will be even greater because your management responsibilities will increase. We’re happy to further discuss the need for prepared financial statements should you ever feel the need to chat.  

HM v2

for more help feel free to reach out. Get in touch with Hamish Mexted