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 deferred.
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 here.
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.