Ten years after the Law Commission commenced its comprehensive review of trust law, the new legislation is almost here. Parliament has just completed the second reading of the Trusts Bill, and has recommended that it be passed. It is estimated that there are between 300,000 and 500,000 trusts in New Zealand, so the Trusts Bill will affect a large number of New Zealanders.
The Trusts Bill will replace both the Trustee Act 1956 and the Perpetuities Act 1964, which are considered to be outdated and overly complex. It will also incorporate additional principles from the common law. While not codifying trust law, the Trusts Bill will provide clarity about the rights and obligations of everyone involved in a trust.
Key aspects of the Trusts Bill include:
- he abolition of the rule against perpetuities, and the setting of a maximum duration of a trust at 125 years;
- specifying certain mandatory duties for trustees, which apply to all trusts;
- specifying standard default duties for trustees, which apply unless they are modified or excluded;
- making it clear that a trustee has an obligation to have regard to the context and objectives of the trust when performing both their mandatory duties and their default duties;
- a requirement for any person paid to give advice in relation to the creation of a trust (such as a lawyer or accountant) to, prior to the creation of the trust, give specific advice to the settlor about:
- the meaning and effect of any modification or exclusion of a default duty; and
- the inclusion of any clause limiting or excluding the trustee's liability for a breach of trust, or granting the trustee an indemnity against the trust's property for the trustee's liability for breach of trust;
- a requirement for each trustee to keep specified documents relating to the trust, including records of any decisions that they have made and contracts that they have entered into;
- rules relating to the provision of information to beneficiaries, which are consistent with the rules set out by the Supreme Court in Erceg v Erceg;
- specifying the powers of trustees, including the power to invest trust property and to distribute trust property to beneficiaries, and the ability to delegate some of those powers;
- rules relating to the appointment, retirement, and removal of trustees, and the related requirements regarding the transfer of property;
- rules relating to the termination, variation, or resettlement of a trust; and
- setting out the court's powers in relation to trusts.
The mandatory duties of a trustee are to:
- know the terms of the trust;
- act in accordance with the terms of the trust;
- act honestly and in good faith;
- hold or deal with trust property and otherwise act for the benefit of the beneficiaries, in accordance with the terms of the trust, or, for a trust for a permitted purpose, to further the permitted purpose of the trust, in accordance with the terms of the trust; and
- exercise the trustee's powers for a proper purpose.
The default duties of a trustee require, unless modified or excluded, that the trustee will:
- when administering the trust, exercise the care and skill that is reasonable in the circumstances;
- when exercising any power to invest trust property exercise the care and skill that a prudent person of business would exercise in managing the affairs of others;
- not exercise a power for the trustee's own benefit;
- consider actively and regularly whether to exercise one or more of the trustee's powers;
- not bind or commit trustees to a future exercise or non-exercise of a discretion;
- avoid a conflict between the interests of the trustee and the interests of the beneficiaries;
- act impartially in relation to the beneficiaries;
- not make a profit from the trusteeship of a trust; and
- make decisions unanimously, if there is more than one trustee.
The new legislation will come into effect 18 months after it receives Royal assent. For those who act as professional trustees, particularly in more complex family situations, this time could pass very quickly.
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.