Trusts Without Borders: Navigating Cross-Border Trust Issues in an Increasingly Mobile World

As New Zealand continues to experience both inbound and outbound migration, it is becoming increasingly common for trust structures to have international connections.

While trusts remain a useful tool for wealth preservation, succession planning, and family asset protection, cross-border movement can create tax consequences that are often overlooked. A trust arrangement that produces a favourable outcome in one jurisdiction may be treated very differently once a settlor, trustee, or beneficiary relocates overseas.

In this article, we explore how discretionary trusts compare across several jurisdictions and highlight some of the key tax considerations that arise when trustees, settlors and beneficiaries cross borders.

1.     The New Zealand Discretionary Trust

The discretionary trust remains a commonly used trust structure in New Zealand.

Under a discretionary trust, as long as trustees are operating within the trust deed and their legal duties as trustees, they generally have the discretion to determine:

• Which beneficiaries receive distributions;
• When distributions are made; and
• How much income or capital each beneficiary receives.

This flexibility makes discretionary trusts attractive for family wealth planning, allowing trustees to provide beneficiaries with financial support, access to assets, and long-term succession and asset protection benefits.

From a New Zealand tax perspective, trusts are generally classified as complying trusts, foreign trusts, or non-complying trusts, with significantly different tax consequences applying to distributions from each category.

2.     How Trusts Compare Internationally

Australia

Discretionary trusts are also commonly used in Australia, often referred to as family trusts.

Like New Zealand, these structures offer considerable flexibility and are widely used for family businesses, investment holdings, succession planning, and asset protection. However, Australia generally taxes trust income more broadly than New Zealand. In some circumstances, Australian-resident beneficiaries may be taxed on distributions that would otherwise be treated as non-taxable capital distributions in New Zealand.

United Kingdom

The United Kingdom has long recognised discretionary trusts as a wealth and estate planning tool.

As in New Zealand, beneficiaries do not have an automatic entitlement to trust assets and trustees exercise discretion over distributions. However, UK trust taxation is considerably more complex, with potential exposure to income tax, capital gains tax, and inheritance tax. Periodic inheritance tax charges may also arise during the life of the trust.

United States

The United States has a trust system that shares many similarities with other common law jurisdictions.

However, US trust taxation is highly technical, and the US tax treatment depends on whether the trust is domestic or foreign and whether it is a grantor or non-grantor trust; non-grantor trusts may also be classified as simple or complex. US persons receiving distributions from foreign trusts may face tax and reporting obligations even where New Zealand treats the receipt as capital.

People’s Republic of China (PRC)

Unlike common law jurisdictions, trusts have historically played a much smaller role in Mainland China's legal and wealth planning framework. In July 2026, the PRC Ministry of Finance and State Taxation Administration introduced Announcement No. 21 of 2026, representing the first comprehensive tax regime specifically targeting offshore trusts. The rules adopt a substance-over-form and, in some cases, look-through approach to offshore trust arrangements. As a result, PRC-resident settlors and beneficiaries may face increased reporting obligations and potential tax consequences in connection with offshore trusts.

3.     When an Overseas Trust Has Connections to New Zealand

An increasingly common scenario involves a trust established outside New Zealand where the settlor, trustees, or beneficiaries later become New Zealand tax residents.

Many migrants assume that because a trust was established overseas, New Zealand tax rules will not apply. Unfortunately, this is not always the case.

New Zealand's trust regime places significant emphasis on the residence of settlors. A change in settlor residency may alter a trust's New Zealand tax classification and affect how future distributions are taxed.

Particular care is required where:

• The trust has accumulated income or gains over many years;
• Additional settlements have been made after migration;
• Trustees relocate to New Zealand; or
• Distributions are made to New Zealand-resident beneficiaries.

In these circumstances, understanding the source and character of trust funds is often critical before any distributions are made.

4.     Distributions from an Overseas Trust to a New Zealand Beneficiary

New Zealand residents receiving funds from overseas trusts should not automatically assume those receipts are tax-free.

Depending on the trust's classification and the nature of the distribution, New Zealand may tax amounts received from foreign trusts and non-complying trusts. Different outcomes can apply depending on whether a distribution represents current-year income, accumulated income, capital gains, original trust capital, or other trust property.

Accordingly, a distribution that appears to be a transfer of family wealth may still have New Zealand tax consequences. Maintaining adequate trust records is therefore essential, particularly where distributions are made many years after the underlying income or gains arose.

5.     When a New Zealand Trust Has Overseas Beneficiaries

The opposite scenario is becoming equally common.

A New Zealand family trust may have children or grandchildren who have relocated overseas. While New Zealand may treat a distribution from a complying trust favourably, the beneficiary's country of residence may apply a very different tax treatment.

Example: Distribution of Sale Proceeds from a Family Property

Assume a New Zealand discretionary trust (that is a complying trust) sells a long-held family holiday property that has always been held on capital account. The trustees decide to distribute part of the sale proceeds to beneficiaries who have relocated overseas.

From a New Zealand perspective, the distribution may generally be tax-free. However, the overseas outcome could be significantly different.

Beneficiary location	Potential overseas implications
Australia	Trust gains may be attributed to the beneficiary, potentially resulting in Australian tax exposure.
United Kingdom	Complex matching rules may attribute historical trust income or gains to beneficiary distributions.
United States	Foreign trust reporting obligations and potentially complex trust taxation rules may apply.
Mainland China	Offshore trust reporting requirements and potential look-through taxation rules may apply following recent reforms.

 

The key message is that trustees should consider not only the New Zealand tax treatment of a distribution but also the tax residency of the beneficiary receiving it. A distribution that is tax-free in New Zealand may nevertheless give rise to tax, reporting, or compliance obligations overseas.

 

Key Takeaways

Trusts remain a powerful tool for succession planning, wealth preservation, and family asset management. However, the increasing mobility of families means trusts are now more likely than ever to operate across multiple tax jurisdictions.

A trust established in one country may develop tax connections with several others as settlors, trustees, and beneficiaries relocate over time. The tax treatment of trust distributions can vary significantly between jurisdictions, particularly where beneficiaries reside overseas.

Before making significant distributions or changing trustee or settlor residency, families should obtain advice on both the New Zealand and overseas tax consequences. A proactive review can often prevent unexpected tax costs and help ensure that the trust continues to achieve its intended objectives for future generations.

This article provides general information only and should not be relied upon as tax advice. Specific advice should be obtained based on individual circumstances before making decisions involving trusts, migration, or cross-border distributions.