The 39% Trust Tax Rate: What It Really Means for You

From 1 April 2024, the trustee tax rate increased from **33% to 39%**. That headline has caused many families to panic and consider winding up their Trusts.

But here’s the reality: **for most people, this change doesn’t mean what you think it does.**

Trusts Are Tax Neutral

A Trust doesn’t always pay tax at 39%. The rule is simple:
- If income is **retained in the Trust**, it is taxed at 39%.
- If income is **distributed to beneficiaries**, it is taxed at their personal tax rates.

That means you can often reduce tax by distributing income wisely.

Why This Matters

The 39% rate only hurts if you leave income sitting in the Trust. With good planning, your Trust remains:
- A flexible tool to manage family finances.
- A way to balance income fairly across family members.
- Still highly effective for asset protection.

Common Misunderstandings

- **“The new tax makes all Trusts pointless.”** Not true. Most clients never leave significant income in the Trust anyway.
- **“It’s too complicated to manage.”** Not true. Once set up correctly, distributions are straightforward.
- **“I’ll save money by winding it up.”** Rarely. You may give up powerful protections **and get no tax savings.**

Real-Life Stories

**✅ Success – David & Sarah**
David and Sarah distributed Trust income to the lower-earning partner and their 19-year-old daughter at university. Result: their tax bill was cut by a third, and funds went straight to where they were needed.

Couples on Different Tax Rates**
- Jane earns $190,000 per year (top rate 39%).
- Mark earns $80,000 per year (marginal rate 33%).
- Their Trust earns $20,000.

If the Trust retains the income, it pays a 39% tax of $7,800.
If the Trust distributes to Mark, it’s taxed at 33% = $6,600.
**Saving: $1,200.**

**⚠️ Failure – Paul**
Paul wound up his Trust because of the 39% rate. A year later, he realised he could have achieved the same tax result by distributing income, but now his family has no asset protection.

The Bottom Line

Don’t wind up your Trust just because of a headline tax rate. A Trust, properly run, is still one of the most effective tools for protecting and managing family wealth.

📖 **Next step:** Contact us to book a **Trust Check** at our offices or via Zoom with Kirsty Hourigan +64 9 4155704. We’ll show you exactly how to keep your Trust working for you.

Disclaimer: This blog is general information only, not legal advice. The decision to wind up a trust has serious implications, including potential loss of asset protection and tax consequences. Please seek professional advice for your situation before taking any action.