With the IRD upping the reporting requirements for trusts, it’s more important than ever to stay on top of your paperwork. Even if your family trust is considered non-active and isn’t earning income, preparing financial statements is still a smart move. Here’s why:
- Keeping Records in Check: Trustees need to hang on to documents that show what the trust owns and owes—it’s part of the job.
- Transparency for Beneficiaries: Beneficiaries have a right to know what’s going on with the trust’s finances. Financial statements help keep things clear and fair.
- Tracking Spending: If the trust is paying for things like school fees or other expenses for beneficiaries, financial statements help keep tabs on those payments.
- Getting the Professionals Involved: Professional trustees can review the financials to make sure everything is running as it should and their obligations are being met.
- Sorting Out Paperwork: Preparing financial statements is a good chance to get important docs like deeds of debt or gifting sorted if needed.
- Relationship Property Baseline: From a relationship property angle, having a record of what the trust owns can set the stage before any relationships get serious.
- Non-Active Trust Rules: Trusts that earn less than $1,000 in passive income (like interest or dividends with withholding tax) don’t need to file a tax return. But it’s still worth keeping financial statements handy, especially if the trust starts earning more and needs to be activated.
- Staying Organised: Financial statements are great for good governance and help trustees manage the trust’s assets. Plus, they record major moves like buying or selling property or changing trustees.
Even if your trust isn’t required to file income tax returns, preparing financial statements is a solid way to keep things organised and running smoothly.