Quick Guide: Changing Trustees of a Family Trust

If your trust owns just the family home, changing trustees can feel like a simple update.

It isn’t. There is a legal transfer of the property, tax reporting and lender involvement (if there is a mortgage).  Also, under AML/CFT laws, this is a captured service which means the lawyer assisting you will need to do enhanced due diligence on the Trust and its trustees.

The purpose of this article is to explain what is involved so you don't get caught off guard.

What is actually happening

A change of trustees means that trust assets, i.e. the property, is transferred from the old trustees to the new trustees.

The trust remains the owner, but the names on the title change through LINZ.  This is because trusts are not a legal entity, like a company, and is represented by its trustees.

If there is a mortgage, the bank must consent before registration.

IRD number requirement

Even though no money is changing hands, the transfer must be reported to the IRD.  

That means:

  • The Trust must have its own IRD number
  • IRD details are provided through the Land Information New Zealand (LINZ) process

If a trustee does not have an IRD number, it needs to be obtained before the property transfer can be registered with LINZ.

Brightline — brief context

The Brightline rules taxes gains on residential property sold within a set period.

A trustee change is not usually treated as a sale to a third party.

However:

  • The rules are fact-specific
  • You should not assume there are no tax implications

In most standard “family home in a trust” situations, there is no Brightline issue — but that position should be confirmed with your accountant, particularly if there is any uncertainty.

AML/CFT — why this applies

Changing trustees of a trust that owns property is a captured activity under the Anti-Money Laundering and Countering Financing of Terrorism Act.

As a result, the legal practitioner assisting must complete enhanced due diligence (EDD) and customer due diligence (CDD) before the work can proceed.

This applies even where:

  • The trust has held the property for years
  • There is no sale
  • The parties are all known to each other

The obligation sits with the lawyer — it is not optional.

What CDD involves

You should expect to be asked for:

For each trustee (new and often existing):

  • Photo ID (passport or driver licence)
  • Proof of address

For the trust:

  • Trust deed
  • Details of all trustees
  • Details of beneficiaries or classes of beneficiaries
  • Information about the settlor

Nature and purpose:

  • Why the trust exists
  • Reason for the trustee change

When Enhanced Due Diligence (EDD) may be required

In some situations, a higher level of verification is required. This can include:

  • Where a party is overseas or not physically present
  • Where there are complex ownership or control arrangements
  • Where the source of funds or wealth needs to be confirmed
  • Where a person is considered higher risk under AML rules

EDD can involve:

  • Certified ID
  • Additional verification of address
  • Information about source of funds/wealth
  • Further background information on the trust structure

What this means in practice

This is usually the part that affects timing.

CDD must be completed before the transaction progresses. If information is incomplete or delayed, the legal work cannot continue.

Where there is also a mortgage, you are often dealing with:

  • AML requirements
  • Bank approval
  • LINZ registration

And while it may be good to have it all dealt with at the same time, it is likely that this needs to be dealt with in stages to satisfy the bank or LINZ requirements.

Where people get caught

Delays tend to come from:

  • Assuming ID won’t be required because “nothing is being sold”
  • The Trust not having an IRD number
  • Overseas trustees needing certified documents
  • Bank consent not being lined up early or requiring full redocumentation which can trigger costs (break fees, loss of a good interest rate etc).

Tax advice

Our firm does not provide tax or accounting advice and the above is for legal process guidance only.

You must speak with your accountant if you have questions about:

  • Brightline
  • Income tax
  • The financial position of the trust

Bottom line

A trustee change for a “home only” trust still triggers:

  • A property transfer
  • IRD reporting for the Brightline Rules
  • AML/CFT obligations
  • (in some cases) redocumentation of a mortgage on the property

Handled properly, it is routine.

Handled casually, it can become a drawn out, costly and difficult process. 

We can help you streamline the process to get the changes happening fast.  Get in touch if you're looking to change trustees.

Posted 21 days ago