Family trusts are being abused - it’s time to confront the problem

Wednesday, 15 July 2026

John Caldwell taught family law at the University of Canterbury for 30 years.

OPINION: Hundreds of thousands of trusts are to be found in New Zealand, far more per capita than in Australia or the United Kingdom. For decades, creating a family discretionary trust became routine financial planning, and trust deeds sit behind many of our family homes, farms and investment portfolios.

But there is a question we have been surprisingly reluctant to ask: are some of these arrangements really trusts at all?

The traditional trust is one of equity's great legal inventions. A person transfers property to trustees, who then hold and manage it for the benefit of others. The settlor gives up control. The trustees assume fiduciary duties to act in the interests of beneficiaries, not themselves.

Many modern family discretionary trusts, however, bear only a passing resemblance to that model.

The typical New Zealand family trust can often have the same person wearing three hats: settlor, trustee and beneficiary. Any additional trustees are frequently relatives or long-time family friends. In practice, the person who transferred assets into the trust commonly continues making the important decisions while enjoying the property much as before.

That should give us pause.

The consequences become especially apparent when relationships break down. New Zealand's relationship property law rests on a simple principle: couples should generally share relationship property equally. Yet assets settled on a trust magically undergo a disappearing act. Property that might otherwise have been divided has vanished.

The courts have struggled with this problem for years. They have used and developed various remedies for trusts that defeat relationship property claims, but all have significant limitations. Many separated partners still discover that substantial family wealth lies beyond the courts' reach.

The deeper issue goes beyond legal niceties. It is whether the law should recognise an arrangement that allows someone to retain effective control and enjoyment of wealth while simultaneously insisting the wealth no longer belongs to them.

The great legal historian Frederic Maitland recognised this tension more than a century ago. He observed that judges and others had entered into a “large conspiracy” to allow arrangements that avoided legal obligations which would otherwise apply. His remark still has resonance.

None of this is an argument against trusts as such. Trusts protecting vulnerable children, managing charitable assets, administering Māori land interests or looking after people unable to manage their own affairs perform valuable societal functions.

The concern is much narrower. It is with trusts created primarily as private shields against future legal obligations while leaving those who created them effectively in control of the assets. If the settlor continues to control the property, benefit from it and decide who receives it, has anything really changed? And, after all, how many wealthy people would voluntarily hand over their assets for someone else to control?

This does not mean every discretionary trust should be dismantled. But it does suggest a broader public debate is overdue. Should the law continue to recognise arrangements where wealth is said to belong to a trust even though, in practical terms, it is treated as the settlor's own?

That question extends well beyond lawyers and judges. It concerns fairness between partners, the integrity of New Zealand's relationship property system and public confidence in the law. The Trusts Act 2019 modernised many aspects of trust law, but deliberately sidestepped the larger question of whether all discretionary trusts deserve the law's protection.

Parliament should now confront that issue. It may not be an easy conversation. Many influential New Zealanders, including members of Parliament, have personal or family connections with trust structures. But that is hardly a reason to avoid the debate.

An institution that has served the common law for centuries deserves respect. Yet when the label 'trust' is attached to arrangements that depart from equity's original principles, perhaps it is time to acknowledge an elephant in the room.