The Trusts Bill has passed its third reading in Parliament and is shortly to receive royal assent, the final stage of a comprehensive overhaul of New Zealand's trust law that began more than ten years ago.
The Trusts Act will replace the Trustee Act 1956 with the purpose of making the law more accessible to both trustees and beneficiaries of trusts. The new Act will impact a large number of New Zealanders as estimates are that there are between 300,000 and 500,000 trusts in New Zealand.
The Act makes a number of key changes to existing trust law:
- Disclosure Obligations. It includes a positive obligation on trustees in most cases to notify someone that they are a beneficiary of a trust and that they have a right to request further information about the trust. This is a significant change and could be one many settlors of trusts may not have anticipated when settling their trust.
- It details the factors that trustees must consider when deciding whether to notify someone that they are a beneficiary of a trust, and whether to provide any information about the trust to a beneficiary on request. While the factors that the trustees must consider are largely a reflection of existing law, trustees will need to take careful note of their obligations around disclosure and consider how disclosure should be managed and the impact that beneficiaries being aware of a trust may have on likely requests for further information about a trust.
- Retaining Core Documents. It requires trustees (or at least one of them) to keep copies of the core documents of the trust, including the trust deed and variations, details of trust assets and liabilities and financial statements, contracts entered into by the trust, records of trustee decisions and settlor letter or memorandum of wishes.
- These core documents of a trust must be kept for the lifetime of the trust, which will require financial statements to be held for longer than the law otherwise requires them to be. This obligation on trustees is likely to result in changes in how professionals both hold and manage trust documentation on behalf of their trust clients.
- Trustee Duties. Whilst the law has always imposed duties on trustees, the new Act actually defines both mandatory and default duties of trustees. The mandatory duties, which cannot be avoided by the terms of the trust, set out the basic obligations of trustees to know the terms of the trust and follow them, act honestly and for the benefit of the beneficiaries and according to a proper purpose. The default duties can be modified or excluded by the terms of the trust deed. They cover such matters as trustees' investment obligations, conflicts of interest and a requirement to act unanimously. We would expect trustees would need to consider the terms of their trust in light of these new duties, and determine whether any variations should be made to the trust deed as a result.
- Trust Duration. It extends the maximum duration of a trust from (effectively) 80 years to 125 years.
- Trustee Liability. There are changes to the rules that apply to trustees' ability to exclude or limit their liability and trustees' rights to be indemnified from trust property. These changes are likely to change how professional trustees manage those trusteeships.
- Delegation. There are changes to trustees' ability to delegate their powers and functions, which increase the circumstances in which the powers can be delegated but restrict the timeframe during which the delegation is effective.
- The Act contains more provisions governing how trustees may be appointed and removed and trust variations and resettlements.
- Dispute Resolution. It provides that a trust deed may permit a trust dispute to be determined by alternative dispute resolution (ADR). The Act provides that the ADR process could be used to resolve issues between the trustees themselves, or between the trustees and one or more beneficiary of the trust. As part of submitting to an ADR process, trustees may also give undertakings in settling the dispute that will be binding on their future actions as trustees.
Broadly speaking, as well as modernising trust legislation, the Trusts Act increases rights and protections for beneficiaries but at the same time imposes more responsibility and prescriptive requirements on the trustees of family trusts. The changes are likely to make trusts more transparent for beneficiaries but also more intensive to administer for trustees, and could lead to changes both to trust documentation and administration.
The Trusts Act will come into effect 18 months from now, in January 2021. While this might seem a long time, there is a lot that trustees should be considering as a result of the new Act and time could pass very quickly. The new rules will apply both to new trusts and existing trusts, and it will be advisable for existing trusts to be reviewed and in some cases possibly varied or wound up.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.