The Trusts Act 2019 – Re-thinking Your Trust
The long-awaited Trusts Bill received Royal Assent on 30 July 2019 and will come into effect in 18 months. This means that from 30 January 2021 (a Saturday), the current legislation will be repealed and an entirely new piece of legislation to “restate and reform New Zealand trust law” will be in force. It will effectively be retrospective meaning that it will apply to all trusts, including those trusts created under the previous legislation.
We believe that, on the whole, the Trusts Act (the Act) is a good thing. The current legislation (over 60 years old) was in need of an update and soon the law will be more understandable and user friendly for everyone. However, the lay of the land has changed in many ways and to continue running your trust without taking the necessary precautions will be like playing Russian roulette, blindfolded.
One of the principles of the Act is that trusts should be administered in a way that avoids unnecessary cost and complexity. It codifies existing best practice as to the administration and operation of trusts while increasing the obligations of trustees and enhancing the rights of beneficiaries. We highlight some of the key relevant aspects below.
Trustees are the owners of trust property and hold it for the benefit of the beneficiaries. The way they do this is constrained by duties set out in the Act. These are largely unchanged from existing legislation however the Act sets out each of the legal duties of trustees in a more accessible way.
Trustee duties will now be classified into “mandatory” duties and “default” duties. Mandatory duties include the duties to know the terms of the trust; act in accordance with the trust deed; act honestly and in good faith and act for the benefit of the beneficiaries. These duties cannot be modified (i.e. excluded) by the trust deed. Default duties (which can be modified or excluded by the deed) include a general duty of care; duty to invest prudently; a duty not to exercise a trustee power for one’s own benefit and a duty of impartiality. Amending the default duties would allow trustees to invest in more risky assets, enable a trustee who is also a beneficiary to take part in decisions affecting them as a beneficiary and benefit from those decisions without being in breach of trust.
Care will be required when considering when and how the default duties should be modified and how the deeds of current trusts will be interpreted by reference to the mandatory and default duties.
Rights of beneficiaries
As well as codifying the duties of trustees, the new law arguably gives beneficiaries stronger rights.
Traditionally, beneficiaries have two “rights”:
- the right to be considered; and
- the right to have the trust properly administered.
The second of these rights means that the trustees must account to the beneficiaries. The Act emphasises that beneficiaries must have “sufficient information” to enable the terms of the trust and the duties of the trustees to be enforced. Trustees will now have a positive obligation to give effect to those rights.
Section 47 says: a trustee “must make available to every beneficiary the basic trust information”. Basic trust information is:
- the fact a person is a beneficiary;
- contact details of the trustees; and
- details of each change of trustee (as it occurs) and the right of the beneficiary to request a copy of trust information.
The Act imposes a presumption that basic trust information will be provided within a reasonable time (12 months).
We recommend that trust deeds are reviewed in relation to beneficiaries and consideration given as to whether it would be preferable to remove certain beneficiaries (if possible) or adopt a policy that all beneficiaries (current and future) will be provided with relevant information. Disclosure will vary depending on the assets of the trust.
Keeping Trust Documents
Along with giving trust information to beneficiaries, trustees must also retain core documents of the trust. Where there is more than one trustee, each trustee must keep a copy of the core documents (trust deed and deeds of variation) and at least one of the trustees must hold copies of all trust documents. It is not clear how far this would extend, for instance would it include contracts entered into long ago which are no longer ‘current’? A trustee must also pass on trust documents when their trusteeship ends.
This all means that, to comply with the new Act, trusts will need to be administered better than ever before. This is so that trustees can fulfil their duties and obligations imposed by the law and be able to demonstrate that they are doing so.
We have highlighted how the Trusts Act is a game changer and what this may mean for you. However, time is on our side. Any changes to your trust should reflect your estate planning objectives and be purpose-driven rather than a knee-jerk reaction. Settlors and trustees need to work out what their trust is really for, and how they will adapt to the new law and deal with the obligations imposed on them.
We are currently assessing how we can best prepare for the new law and are keeping a close watch on what the trust industry is saying. As these changes will affect all of our trust clients, we will be writing to our trust clients and inviting them to reconsider what their trust is for and whether changes should be made going forward.
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