A trust must exhibit the "three certainties":
- certainty of the settlor's intention to create a trust
- certainty of the subject matter of the trust
- certainty of objects, (i.e. beneficiaries, or purposes as in the case of a charitable trust).
An initial cash amount (Settlement Sum) is required as consideration of the contract establishing the Trust, with subsequent transfers of property to the trust following the formalities necessary for the conveyance of that particular class of property.
NZ Trusts most commonly Irrevocable Discretionary Trusts.
The maximum duration of a NZ Trust is 80 years to comply with the rule against perpetuities under the Perpetuities Act 1964. This Act also enshrines the common law perpetuity period of a "life in being plus 21 years".
Usually, power to appoint trustees is vested in the settlor of the trust. Trustees have a statutory right of indemnity under the Trustee Act 1956. Trust deeds often contain a detailed right of indemnity, and this right of indemnity will be lost only in the event of gross negligence, dishonesty, fraud or a wilful breach of trust by a trustee.
The role of Protector is commonly to approve the appointment or removal of trustees and/or beneficiaries, and to approve distributions or variations to the Trust Deed. The appointment can be during the lifetime of the Settlor or after the Settlor’s death.
The duties and responsibilities of trustees are governed by the Trustee Act 1956 and, modified in relation to powers to invest, the Trustee Amendment Act 1988.
While the non-delegation principle is part of New Zealand law, this principle may be overridden by express provision in the trust deed. Commonly, trustees will delegate certain functions such as investment management, but will retain the primary trustee administration responsibility in their own hands.
If a trust does not have an express power of variation contained in the deed, the trust deed may not be amended or modified without making a successful application to the High Court to vary the deed. Where there is no express power of variation, variation is often achieved by way of trust re-settlement.
Since 1988, a trust with New Zealand resident trustees, but settled by a non-resident settlor, is not subject to tax in New Zealand except on income which has its source in New Zealand. This regime is sometimes known as "the settlor trust regime", because the tax treatment of the trust turns in essence upon the tax residency of the settlor.
"Settlor" is defined broadly, and includes anyone who provides goods, services or money to a trust for less than full market value, or acquires goods, services or money from a trust for greater than market value.
