While this blog post focuses primarily on the New Zealand financial system, there may still be valuable insights and strategies that readers from other countries can adapt to their own financial situations.
There are two things that are certain in this world. Death and taxes. At least with taxes, you can take steps to mitigate and (legally) reduce the amount you pay. But there is no avoiding death. It comes for us all. Dying is just part of living (the irony!). Unfortunately, your tax worries don’t go away when you die. Instead, your family will inherit your tax issues for you.
So, while we’re still alive, how can we best manage our tax affairs so we don’t leave our loved ones with a giant tax headache when we pass?
The first question that needs answering is who will manage your tax affairs when you die. Generally speaking, this will be your next of kin. Your spouse, your children or your siblings.
Depending on the complexity of your assets and investments, you may want to consider hiring a professional to assist your next of kin in the event of your passing. When you pass away, your investments continue to generate a return. These returns are taxable income. Hiring an accountant to manage these tax affairs for you is a good idea, as they will have a better idea of how the income will be taxed (compared to your next of kin).
If you have an accountant or lawyer, your next of kin will have to consult with them to sort out your tax affairs when you die.
These are what you should be doing if a loved one passes away.
Here in Aotearoa New Zealand, you can report the death of an individual to myTrove, which will notify all relevant government agencies that the individual has passed away. You don’t need to provide the IRD with a death certificate once you’ve reported the death on myTrove.
For IRD to allow you to manage a deceased individual’s estate tax, you need to have written confirmation that you can act on their behalf. The most commonly accepted document is a copy of the will or probate. If you can get a letter of administration or get the family lawyer to confirm your authority, that will work as well.
By letting IRD know that someone has died, you make sure that:
Once you’ve informed the IRD that a loved one has passed away, you will need to file a final income tax return for that person. This is similar to filing an individual income tax return (an IR3). If you have an accountant, you can ask them to file it for you.
If the deceased person is due a refund, you can file a declaration in support of refund for deceased persons to ensure that the refund gets transferred to the deceased person’s next of kin.
Now that we’ve gotten the technical details of what happens when you pass out of the way, let’s talk about how you can make life easier for your loved ones in the event of your death.
The average investor will have at least three to four different platforms they invest on. It is important to list down what these investment platforms are and what assets you have maintained across them.
For example, Joseph maintains shares with FarOut Investments, an overseas investment company, buys NZ shares with Buysies, a local investment platform, and has managed funds with Kiwi4eva, a local fund manager. Joseph ensures that all the contact details of all investment platforms are in an easy-to-find location.
Should Joseph pass away, his next of kin can inform the platforms that he has passed. This allows any income or taxes to be declared in the name of Joseph’s estate.
Most investment providers will give you a running balance of your current investments with them. You can extract the figure from your investment platform and put in the value of the investment on the list of investment providers you have prepared above.
For property investments, you can obtain their current market value by looking at similar listings online or by engaging a property valuer. You can value crypto and individual share investments by looking at the current valuation of the market using tools like MarketWatch.
Having a balance sheet of your investments means that your next of kin can identify the assets that you’ve held in your name. This also means that if those assets get disposed of, it is easier for them (or your accountant) to work out the taxes that are due on those assets. Crypto assets are especially tricky when it comes to taxes, as there are different tax treatments for them, compared to property and equity investments.
Liabilities are the loans that you have. The most obvious one would be any outstanding mortgages that you have on your own home or investment properties. Other loans include your credit card loans, Buy Now Pay Later schemes, and taxes owed to the IRD.
If you own a company, it would be good to check with your accountant what your shareholder’s current account balance looks like. A shareholder’s current account with a debit balance (overdrawn) means that you owe the company money. This can affect the final income tax return. Your accountant can help explain this to you.
Using accounting software like PocketSmith will make keeping track of your investments and liabilities easier. PocketSmith even has a handy Net Worth option that will allow you to see your recorded investments and liabilities at a glance.
Winding up an estate can be a lot quicker if you have a clearly written will. The will should show how your assets will be distributed upon your death.
Common sense, right? If you ensure that you’re all paid up on taxes with the IRD, then your loved ones will have one less thing to worry about. However, if you have instalment arrangements ongoing, it will be good for your loved ones to be aware that such an arrangement exists.
Please note that tax penalties are written off in the event of your death. However, the principal amount and any interest charged on it will still remain. If you are looking to write off all tax owing, you should be looking at applying for tax relief instead. In some cases, tax relief may be provided in the case of a death, but only if the deceased was the primary breadwinner and the family did not have any income or assets they could leverage/sell to pay off the tax debt.
In Aotearoa New Zealand, gift duty has been abolished since 2011. So if you want to give a property gift and/or shares with your loved ones, you can do so without worrying about any tax implications.
Same goes for inheritance. Your loved ones will not pay tax on any property that they inherit from you in the event of your passing.
The bright-line test does not trigger on the inheritance of a property from a deceased individual. As of March 2025, the current bright line test is two years. Meaning that if you sell property within two years of its purchase, any income you make on it is taxable. The exception is that if you purchase a share of an inherited property, you will pay tax if it is sold within the bright-line period.
While inheritance does not trigger taxation, any subsequent sale of the asset could result in tax liabilities. For example, Wally inherited a subsection from his grandfather, who had originally bought it with the intention to develop, subdivide and sell it. If Wally proceeds to sell it in the future, the proceeds are taxable. This is because the property’s original purpose is for a profit-making venture.
Estate taxes have the same treatment as any income tax on earnings while you are alive. Basically, any income earned by your estate is taxable. The most common form of estate tax income is interest or dividends earned on investments. If you earn royalties, then your estate will pay taxes on that income after you’ve passed away.
The main difference between estate tax and individual tax is the tax rate. Individuals pay tax at the individual income tax scale rate, but estates pay tax at a 33% flat rate. This tax rate will apply to all the estate’s income for the next three years — after that, it will be taxed as though it was a trust.
In Aotearoa New Zealand, any income from overseas is taxable. Same goes for when you’re dead. If you have shares or investments in overseas accounts, your next of kin or accountant will need to declare these earnings to the IRD. Foreign income adds to the rest of estate income. Then you get taxed on the total. Any foreign tax credits can offset the amount of tax your estate has to pay.
If you are a trustee of a foreign trust, then you can register as a NZ foreign trust with the IRD. This may allow you to apply for tax exemption for foreign sourced income from that trust.
If you have a family trust, upon your passing, the trust will likely hold the majority of your investments. Most trusts own the family home. Some trusts are set up to handle the investment properties of a family. Either way, so long as one Trustee remains alive, nothing changes from a tax point of view.
If you have adult children and maintain a family trust, you should consider making them a full trustee (and not just a beneficiary). This will help keep the transition simple should you meet an untimely demise.
In the event that you have assets in your personal name, you can consider inheriting the assets to your family trust. This helps reduce tax compliance and consolidates all assets into one entity.
Companies are unlike trusts, they are investments in your personal name. Shares in a company are assets. When you die, these shares can be inherited by your loved ones. If you have a manager or employees who can run the company without you, then nothing changes (tax-wise) when you die.
If you are the sole shareholder/manager, then the company will likely stop trading when you die. Then, your loved ones (who now hold the shares to your company) will have to file a final income tax return for the company as well. Then they can apply to have it removed from the company register.
Partnerships are tricky. If a member of a two-person partnership passes away, then the partnership also ends. A final tax return needs to be filed for the partnership and any outstanding tax will need to be paid up.
If there are three or more individuals in a partnership, the partnership can continue with the death of one member. The tax return filed for the partnership will need to be adjusted to account for this, though.
After you pass away, if your estate continues earning investment income, it will get taxed at a flat 33% tax rate. This is generally higher than the personal income tax rate. It is important to have all income-generating assets in your name distributed to your loved ones as soon as possible.
Once the assets have been distributed, you can apply to wind up the estate with the IRD. To do so, you will need to first ensure that the estate is no longer earning any further income. This can be done by:
If the estate no longer earns income but still holds assets, the tax account cannot be closed. Instead, you can tell the IRD to register the estate as being non-active so that it is not required to file income tax returns.
Winding up an estate can be a lot quicker if you have a clearly written will. The will should show how your assets will be distributed upon your death. This reduces the chance of disputes and prevents your estate from being taxed as a trust (where you can potentially pay tax of 39%).
It is good to be educated on what happens after you die, tax-wise, anyway. In most cases, a well-written will can do wonders in saving on estate taxes. Note that everyone’s tax position is unique. So if you’re looking for a way to arrange your postmortem tax affairs in an efficient manner, you should get in touch with an accountant.
Remember that there are only two things in life that are certain! Death and taxes.
Sam is the director of SH Advisory, an online accounting firm for small businesses and startups in NZ. He is also the creator of The Comic Accountant, an internationally-read finance comic blog. With 15 years experience in accounting and finance, he loves sharing quality financial advice with small business owners everywhere. In his spare time, he likes to nerd out over the latest board game launches and great PC gaming deals online. If you need help with your small business and startup, Sam is the person you want to talk to!
