Quick Answer: When the settlor of a New Zealand family trust dies while living overseas, the trust itself does not automatically end — it continues under the control of the trustees. However, several immediate steps are required: the trustees must formally acknowledge the settlor’s death, review the trust deed for any death-activated provisions, and consider whether forced heirship claims from the settlor’s home jurisdiction could affect the trust assets.
The Trust Does Not End When the Settlor Dies
A common misunderstanding is that a trust automatically ends when the settlor dies. Under New Zealand law this is not correct. The Trusts Act 2019 does not make the death of the settlor a terminating event unless the trust deed specifically provides for it.
The Trusts Act 2019 is available in full on the New Zealand legislation website: legislation.govt.nz — Trusts Act 2019.
Trust assets held at the time of death are not part of the settlor’s estate — they are trust assets and do not pass under the will or under intestacy rules. This is one of the key reasons trusts are used for estate planning: they provide a mechanism for asset succession that bypasses the estate administration process entirely.
What Trustees Must Do Immediately
Obtain a certified copy of the death certificate: For a death occurring overseas, an apostilled or notarised copy of the foreign death certificate is required by NZ financial institutions and LINZ.
Review the trust deed for death-activated provisions: Many trust deeds include provisions that take effect on the settlor’s death — trustee composition changes, specific distribution instructions, or new appointment procedures.
Locate and review the memorandum of wishes: While not legally binding, the memorandum of wishes becomes an important document after the settlor’s death and trustees should review it before making distribution decisions.
Notify relevant beneficiaries: Under the Trusts Act 2019, trustees have disclosure obligations to beneficiaries. The death of the settlor may trigger disclosures that were previously deferred.
Consider trustee vacancy: If the settlor was also a trustee — common in NZ family trusts — their death creates a vacancy that must be filled in accordance with the trust deed.
The Foreign Probate Problem
The overseas executor of the settlor’s estate has authority over the settlor’s personal estate assets — but not over trust assets. Trust assets are not personal assets of the settlor, and an overseas executor who attempts to access them is acting beyond their authority.
If the settlor held shares in a trustee company or had other interests in the trust’s governance structure, the overseas executor may have a legitimate role in transferring those specific interests. Legal advice is needed to distinguish exactly what the overseas executor does and does not have authority over.
Forced Heirship Claims and the NZ Trust
In jurisdictions including China, France, and many Middle Eastern countries, mandatory inheritance rules require a portion of a deceased person’s estate to pass to specified family members. A common question is whether these rules can reach NZ trust assets.
As a general principle, New Zealand courts apply New Zealand law to assets located in New Zealand. However, where trust assets were transferred in with the intent of defeating forced heirs, some jurisdictions will attempt a claw-back. Early legal advice on the trust’s exposure to foreign claims is important when a settlor has died and the family is based in a forced heirship jurisdiction.
Agile Legal’s trusts and estates team advises both trustees and beneficiaries of NZ trusts where a foreign-based settlor has died.
Legal Disclaimer: This article is for general informational purposes only and does not constitute legal advice. Every case is unique. If you require legal assistance, please contact Agile Legal for a confidential consultation.
Frequently Asked Questions
Can overseas beneficiaries receive distributions after the settlor dies?
Yes. Overseas beneficiaries can receive distributions from a NZ trust. However, the tax treatment in the beneficiary’s country of residence depends on local tax law — NZ does not impose withholding tax on most trust distributions to non-residents, but the receiving country may tax the distribution as income. Overseas beneficiaries should seek local tax advice before receiving a distribution.
What if there is no memorandum of wishes?
Where the trust deed gives broad trustee discretion and there is no memorandum of wishes, trustees must exercise their own judgment about how to manage and distribute trust assets in the best interests of all beneficiaries. In complex cases, taking legal advice before making significant distribution decisions is strongly recommended.
Can the settlor’s overseas executor access NZ trust assets to pay estate debts?
Generally, no. Trust assets are not available to meet the personal debts of the settlor’s estate unless the assets were transferred in with the intent of defeating creditors. An overseas executor who attempts to access NZ trust assets without a specific legal basis should be resisted — trustees should seek independent legal advice before responding.