On 30 July 2019, the Trust Act 2019 received Royal Assent signalling a modernisation of trust legislation that, given the number of trusts in New Zealand, we should all be aware of.
The new Act will replace the Trustee Act 1956 and its purpose is to make the law more accessible to both trustees and beneficiaries of trusts.
Significantly the new Act does not come into force until 30 January 2021 – given the extent of the changes, the new Act provides for an 18-month lead in. While this is a substantial period, time will pass quickly and the new Act will be in force before we know it.
The new Act will apply to existing and new trusts, and therefore we recommend that all existing trusts are reviewed in light of the changes and in some cases varied or wound up.
Some of the key changes being introduced by the new Act are:
Trustee Duties
The new Act identifies and defines mandatory and default duties of trustees.
The five mandatory duties that cannot be avoided or excluded in the trust deed are:
- a duty to know the terms of the trust,
- a duty to act in accordance with thoseterms,
- a duty to act honestly and in good faith,
- a duty to act for the benefit of beneficiaries, and
- a duty to exercise the trustee’s powers for proper purposes.The ten default duties are not compulsory but will apply unless they are expressly excluded in the trust deed. The default duties are:
- Exercise reasonable skill and care in administering the trust, having regard to any special knowledge or expertise that the trustee has, or to any special business or professional knowledge or expertise if the trustee is acting in the course of a business or profession;
- Invest prudently, with the same regard to special knowledge or experience as above;
• Not exercise their power for their own benefit, whether directly or indirectly;
• Regularly and actively consider whether they should be exercising their powers;
• Not bind or commit trustees to the future exercise or non-exercise of their powers;
• Avoid conflicts of interest;
• Act impartially between beneficiaries;
• Not profit financially from being a trustee;
• Not take any reward for being a trustee; and
• Act unanimously with the other trustees. Trust Duration
The length of a Trust’s life has been extended from a maximum of 80 years to a maximum of 125 years.
Duty to hold documents
The new Act requires trustees to retain core documents, so far as it is reasonable. Where there is more than one trustee, each trustee must hold:
The trust deed and any other document that contains terms of the trust;
Any variations made to the trust terms;
And they must be satisfied that at least 1 of the trustees holds the other required documents and that they will be made available to the other trustees on request. The other core documents are:
• Records of trust property identifying the assets, liabilities, income and expenses of the trust;
• Records of trustee decisions made during the trustee’s trusteeship;
• Written contracts entered into during that trustee’s trusteeship;
• Accounting records and financial statements prepared during that trustee’s trusteeship;
• Documents of appointment, removal, and discharge of trustees;
• Any letter or memorandum of wishes from the settlor;
• Any other documents necessary for the administration of the trust;
• Any of the above documents that were kept by a former trustee and passed on to the current trustee.
Disclosure Obligations
The new Act favours keeping beneficiaries informed and clearly outlines the basic trust information that is to be provided to every beneficiary, namely:
• that they are a beneficiary;
• the name and contact details of the
trustees;
• changes to the trustees as they occur; and
• the right of the beneficiary to request a copy of the terms of the trust or trust information.
Trustees may only refuse to provide information to beneficiaries after considering both their general obligation to provide information and a series of factors as to the nature of the information and the practicalities of restricting that information.
The implications of this are clear, particularly in circumstances where it has always been considered appropriate for a person’s interest in a trust not to be disclosed to them.
These are only some of the changes however in general terms, the new Act, increases the rights and protections for beneficiaries while also imposing more responsibility and prescriptive requirements on the trustees. 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.
If you are a trustee of a trust, then we recommend that you speak to the trust’s lawyer in the coming months to consider the changes as they relate to the trust in question.
