Testamentary Trust (New Zealand)

A Testamentary Trust is a trust created by a Will that comes into existence upon the testator's death. Unlike an inter vivos (living) trust, a Testamentary Trust is established posthumously and is governed by the provisions of the Will and the Trusts Act 2019. In New Zealand, Testamentary Trusts are used for several purposes: (1) Protecting assets for minor children — assets held on trust are managed by trustees until children reach a specified age (e.g., 21 or 25), rather than being distributed outright at age 18. (2) Providing for a spouse or partner while preserving capital for children from a prior relationship. (3) Protecting a vulnerable beneficiary who cannot manage their own financial affairs. (4) Managing commercial or investment assets (businesses, rental properties) that require ongoing professional management after death. (5) Asset protection from the claims of a beneficiary's creditors or relationship partner under the Property (Relationships) Act 1976. Under the Trusts Act 2019, trustees of a Testamentary Trust have mandatory and default duties, including the duty to act in the interests of all beneficiaries, the duty to invest prudently, and the duty to keep accounts.

The Trusts Act 2019 significantly modernised New Zealand trust law and introduced a thorough set of trustee duties. Mandatory duties (which cannot be modified by the trust deed or Will) include: the duty to act in accordance with the terms of the trust; the duty to act honestly and in good faith; the duty to act for the benefit of beneficiaries or to further the purpose of the trust; and the duty not to exercise trust powers for the trustee's own personal benefit. Default duties (which apply unless modified by the trust terms) include: the duty to invest prudently (the standard of a prudent business person managing investments for others); the duty to consider the exercise of trustee powers regularly; the duty to not delegate unless permitted by the trust terms; the duty to keep accounts and make them available to beneficiaries; and the duty to act unanimously if there are multiple trustees. Trustees who breach their duties are personally liable to compensate the trust estate for any loss. The Trusts Act 2019 also introduced greater transparency — beneficiaries have a right to request basic trust information, including whether they are a beneficiary and the identity of the trustees.

Under the Perpetuities Act 1964 (now partially superseded by the Trusts Act 2019), trusts in New Zealand were historically subject to a maximum duration of 80 years. The Trusts Act 2019 abolished the rule against perpetuities for trusts created on or after 30 January 2021, removing the 80-year maximum duration for new trusts. For Testamentary Trusts arising from Wills executed after the commencement of the Trusts Act 2019, there is no mandatory maximum period — the trust can continue for as long as its purposes require, subject to the trust terms. However, it remains established standards to specify the duration of the trust in the Will (for example, until the youngest beneficiary reaches age 25, or until the trust fund falls below a minimum value, or at the trustees' discretion after a specified number of years). For Wills executed before the commencement of the Trusts Act 2019, the 80-year perpetuity period under the Perpetuities Act 1964 may still apply unless the Will was updated. Legal advice should be sought on the perpetuity position for any trust established under an older Will.

The Family Protection Act 1955 (FPA) gives certain family members the right to apply to the court for adequate provision from a New Zealand estate where the deceased has not made adequate provision for them in their Will. This right applies even where the estate assets are held in a Testamentary Trust — if a family member can show that the Will (including the trust provisions) fails to make adequate provision for their proper maintenance and support, the court can order that additional provision be made. The FPA applies to the spouse/civil union/de facto partner, children, and other dependants of the deceased. A Testamentary Trust that provides income for a surviving spouse but does not allow them to access capital may be found to be inadequate provision in some circumstances. The court has wide discretion under the FPA to make whatever provision it considers appropriate, including directing that capital be distributed from the trust rather than held indefinitely. Testators who wish to balance the competing interests of a surviving partner and children from a prior relationship should take specialist legal advice when structuring a Testamentary Trust to minimise the risk of successful FPA claims.

A Testamentary Trust (New Zealand) does not legally require a lawyer in New Zealand, and individuals and businesses may draft and execute the document independently. The Wills Act 2007 does not mandate legal representation for the creation or signing of this type of document. However, seeking independent legal advice from a qualified New Zealand lawyer is recommended for transactions involving substantial financial value, complex regulatory requirements, or cross-border elements where multiple legal jurisdictions may apply. A lawyer can verify that the document complies with all applicable statutory requirements, identify potential risks specific to the transaction, and confirm that the terms adequately protect the interests of all parties involved. The High Court of New Zealand has jurisdiction over disputes arising from this type of document, and Companies Office may impose additional compliance obligations depending on the nature of the underlying transaction. Professional legal review is particularly advisable where the document will be submitted to government agencies or used as evidence in legal proceedings.