Most Read Contributor in New Zealand, October 2015
New Zealand is estimated to have between 300,000 and
500,000 trusts, yet the law which governs them has been on the
statute books since 1956. That's about to change.
The Law Commission, after an exhaustive study into New
Zealand trust law, has proposed a new Trusts Act "fit for the
21st century". We run through the key features, and what the
change will mean for trustees and beneficiaries.
Definitions – the core features of a
trust are defined. The Court can find that a trust does not exist
if it lacks the listed statutory characteristics, including the
intention of the settlor to create a trust. The Commission has
decided to use this as the tool to address arrangements that
purport to be trusts but lack the fundamentals, instead of
legislating for a definition of sham or illusory trust. Amongst
other things, the definition of trust says that no trust will exist
if the sole beneficiary is also the sole trustee.
Mandatory trustee duties will be implied into
every trust and will require trustees to:
understand and adhere to the terms of the trust
act honestly and in good faith
act for the benefit of the beneficiaries or to further the
purpose of the trust
exercise stewardship over the trust property for the
beneficiaries or the purpose of the trust, and
exercise the powers of a trustee for a proper purpose.
Breach of trust – a trust deed cannot
limit a trustee's liability, or indemnify a trustee for a
breach of trust arising from the trustee's own dishonesty,
wilful misconduct or gross negligence. The Commission was
considering extending this to negligence. Its apparent change of
mind will be a welcome relief for professional trustees.
Duty to provide information – this
provides that trustees must notify everyone who has a realistic
possibility of receiving trust property that they are beneficiaries
and that they have a right to request information. Trustees will be
obliged to provide sufficient information to sufficient
beneficiaries to enable the trust to be enforced.
Duration – trusts will be able to exist
for 150 years instead of 80, as at present.
Relationship property and trusts – it
will be easier for the court to order trustees to distribute assets
from trusts after the breakdown of a relationship.
Corporate trustees – proposals relating
to the liability of directors of corporate trustees and compulsory
disclosure that a company is acting as trustee have been
We will keep you informed of the legislation's progress
through Parliament. The new Trusts Act, if enacted, will have
implications for anyone who has or uses trusts. You may wish to
consider how your existing trust structure sits within the
Commission's recommendations. The report is available
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
The legislation won't be in effect for at least 12 months, but businesses should review their standard form agreements.
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