Do Trusts get their Fair Share of the PIE?

As a registered financial adviser, an investment avenue that is often overlooked by New Zealand trusts is Portfolio Investment Entity (PIE) funds.

While PIE funds are not exclusive to trusts, they offer unique advantages that make them particularly appealing to the average mum and dad investor. In this article, we will explore why New Zealand trusts should seriously consider investing in PIE funds and discuss whether this option is suitable for you and your circumstances.

Tax Efficiency

One of the most significant advantages of PIE funds is their tax efficiency. Unlike traditional investments, PIE funds are subject to a different tax regime, which can result in substantial tax savings for investors. Trusts investing in PIE funds are taxed at the trust's prescribed investor rate (PIR) which is normally 28%, whereas the Trust’s resident withholding tax rate, maybe 33% (with the Government considering a higher 39% marginal tax rate for trusts). This means that trusts can benefit from lower tax rates, potentially resulting in higher after-tax returns for the beneficiaries.

Simplicity and Ease of Management

For mum and dad investors, simplicity and ease of management are crucial factors when considering investment options. PIE funds offer a hassle-free investment experience, as they handle all tax obligations on behalf of investors. Trusts investing in PIE funds can avoid some of the complexities associated with filing individual tax returns, making it an attractive option for those seeking a relatively hands-off approach to investing.

Diversification and Professional Management

PIE funds provide access to a diversified portfolio of investments managed by professional fund managers. This diversification helps spread risk across various asset classes, reducing the impact of any single investment's performance on the overall portfolio. Trusts can benefit from the expertise of experienced financial advisers who manage the funds, helping to ensure that your investment portfolio performs in line with markets over time and aligns with the goals and objectives of the trust.

Flexibility and Accessibility

PIE funds offer a range of investment options to suit different risk appetites and investment goals. Whether a trust seeks conservative income-focused investments or growth-oriented options, there are PIE funds available to cater to their specific needs. Additionally, PIE funds often have lower minimum investment requirements, making them accessible to a wide range of investors, including trusts with varying capital sizes.

New Zealand trusts should seriously consider investing in PIE funds due to their tax efficiency, simplicity, diversification, flexibility, and transparency. By taking advantage of the unique benefits offered by PIE funds, mum and dad investors can enhance their investment portfolios while minimizing tax obligations and administrative burdens.

As always, it is essential to consult with an independent registered financial adviser to determine the suitability of PIE funds for your specific trust's circumstances.

This article was written by Brad MacDonald, Financial Adviser at MacDonald Wealth. The views expressed in this article are provided as general information and do not denote personalised financial advice. A copy of our ‘important information about us’ disclosure document is available free on our website. Visit www.macadonaldwealth.co.nz for more information.