MNWPlanning Guide · October 8, 2026 · Rick Parry
What the 39% trustee rate changed, and what it did not
The trustee tax rate changes that took effect on 1 April 2024 did not make family trusts obsolete. They did remove much of the simple tax-rate advantage associated with retaining income in a trust. Whether a trust remains useful now depends more clearly on its purpose, administration, beneficiaries, and the assets it holds.
Trustee income retained by most trusts is taxed at 39% when net trustee income exceeds $10,000 for the year. If net trustee income is $10,000 or less, the rate is 33%. The lower rate is not a marginal band: once the threshold is exceeded, the applicable 39% rate is imposed on the trustee income, subject to the statutory exceptions.[1]
| Income or trust type | General treatment |
|---|---|
| Trustee income above $10,000 | 39% |
| Trustee income of $10,000 or less | 33% |
| Qualifying disabled beneficiary trust | 33% |
| Deceased estate during the year of death and next three income years | 33% |
| Income caught by the minor beneficiary rule | Generally 39%, subject to exceptions |
| Certain close-company beneficiary income | 39% where the corporate beneficiary rule applies |
Beneficiary income is not automatically taxed at 39%. It is generally taxed at the beneficiary's rate, but the minor beneficiary and corporate beneficiary rules can instead impose the trustee rate. Both regimes contain conditions and exceptions.[2] A distribution made only to obtain a lower rate can therefore produce a different result from the one anticipated.
A trust remains a legal relationship in which trustees hold and manage property for beneficiaries or a permitted purpose. It can support controlled intergenerational transfers, provision for a vulnerable beneficiary, continuity of family asset management, and governance where outright ownership would be unsuitable.
None of those outcomes is automatic. A trust is not a guaranteed shield from creditors, relationship-property claims, or family disputes. Effectiveness depends on the deed, the purpose and timing of settlements, who exercises control, and whether trustees genuinely perform their duties. Under section 44C of the Property (Relationships) Act, a court can order compensation where relationship property was disposed of to a trust and the disposition defeated a spouse's or partner's rights.[3]
A trust is useful when its legal purpose justifies its cost and constraints, not merely because it once produced a lower tax rate.
The Trusts Act 2019 places mandatory duties on trustees, including knowing and following the trust terms, acting honestly and in good faith, acting for beneficiaries or the permitted purpose, and exercising powers for a proper purpose.[4] Default duties, unless properly modified by the deed, include reasonable care, prudent investment, impartiality, and unanimous decision-making by multiple trustees.
Trustees must also consider the Act's beneficiary-information presumptions and retain core trust records. Separately, many domestic trusts filing an IR6 must provide Inland Revenue with financial information and details about settlors, distributions, beneficiaries who receive them, and powers of appointment.[5] Minutes, resolutions, accounts, and a documented investment process are therefore not optional housekeeping.
A trust investing in a multi-rate PIE must select an appropriate PIR. Inland Revenue states that a 28% PIR is final tax for the trust, while 17.5% and 0% settings have different return consequences and eligibility considerations. A 10.5% PIR is confined to a testamentary trust.[6] This can make a PIE relevant to the tax design, but it does not mean that every trust should automatically use a 28% PIR or move every asset into a PIE.
A review is sensible where the trust was created mainly for tax reasons, the deed predates the current family structure, trustee decisions have not been recorded, beneficiaries have not been considered, or the investment policy no longer matches the trust's purpose. It is also warranted when a settlor, trustee, appointor, or beneficiary has died, separated, moved overseas, lost capacity, or experienced a material change in financial circumstances.
The conclusion may be to retain the trust, amend its governance, change investments, appoint an independent trustee, distribute assets, or wind it up. Those steps can have tax, relationship-property, succession, and creditor consequences. The defensible decision is the one reached after the lawyer, accountant, trustees, and financial adviser have examined the same facts, rather than each looking at one part of the structure in isolation.
By Rick Parry, Certified Financial PlannerCM, Co-Founder of My Net Worth
References
All content is general in nature and does not constitute personalised financial advice. My Net Worth Limited (FSP 1012016) is a Financial Advice Provider licensed and regulated by the Financial Markets Authority. A copy of our disclosure statement is available on request and free of charge.