Trust Law in New Zealand has received the modification it needed after more than 60 years since the Trustee Act 1956 (“Trustee Act”) was enacted. On 30 January 2021, the Trusts Act 2019 (“2019 Act”) will come into effect replacing the Trustee Act. It is estimated that the 2019 Act will potentially trigger the review of the estimated 300,000-500,000 trusts currently in existence in New Zealand. The stated purpose of the 2019 Act is to restate and reform current New Zealand trust law to make it more accessible to the general public. The intention is to provide clear guidance for trustees and beneficiaries and make it easier to resolve disputes.
If you are a settlor, trustee, or a beneficiary of any trust (including a charitable trust) there are a number of important changes that you will need to be aware of. They are:
The 2019 Act clearly states the mandatory duties that all trustees must be aware of and act strictly in accordance with when undertaking the administration of a trust.
There is no ability to amend or exclude the mandatory duties. Although these duties primarily already exist under the Trustee Act, many of them are only understood by a minority of persons due to the complex drafting of the Trustee Act.
Standing alongside the mandatory duties, are the default duties that will apply to all trusts (existing and new) unless they are specifically modified or excluded within the trust deed to the extent permitted by the 2019 Act. This fact is important as there are a considerable number of default duties that are commonly not adhered to by trustees, such as, for example:
Trust deeds may need to be updated to exclude or modify relevant default duties to ensure that trustees are not in breach of trust by, for example, investing all of the trust fund in one property or simply investing in nothing other than property.
Where default duties are modified or excluded, lawyers as paid advisors in the creation of the trust deed or the variation must ensure that the consequences of such modifications are fully understood by the settlors and/or trustees of the trust.
Trustees are currently prevented from limiting their liability arising from dishonesty or wilful misconduct in relation to the administration of a trust. The 2019 Act extends this to include liability arising from gross negligence. This is a significant and potentially costly change for some. Section 44 of the 2019 Act provides some guidance on what will constitute gross negligence.
The 2019 Act provides clearer guidance around what trust documents and records need to be kept by trustees for the duration of their trusteeship. Trustees must be aware of their obligations and ensure core documents are kept. Core documents include documents like the trust deed and any variations of it, appointment and removal of trustees, and financial statements.
Under the 2019 Act, beneficiaries of a trust, are entitled to basic trust information to keep trustees accountable for acting in their best interests. Beneficiaries are alsoable to request further trust information, however there are a number of factors trustees must take into consideration before supplying or refusing to supply this information, and if as a settlor or a trustee you have concerns about beneficiaries having too much information and sitting back and becoming lazy due to their perception that “money will come their way” then you can insert reasonable confidentiality provisions in the trust deed limiting disclosure.
There has also been considerable commentary that all beneficiaries and all classes of beneficiaries are entitled to information and while this may be implicit, the ability to limit disclosure may be used to overcome this as well as carefully reviewing the classes of beneficiary and perhaps varying the trust deed to limit these. Many earlier trust deeds were drafted with incredibly wide classes of beneficiaries, many of whom would never have benefitted from the trust fund.
Trustees may delegate their powers of administration of the Trust to a third party in the case of temporary lack of mental capacity or temporary inability to be contacted, as well as the current position under the Trustee Act regarding lack of physical capacity or being overseas. However, notwithstanding this change under the 2019 Act our view remains that it is best to set out certain rights and obligations in this regard in the trust deed.
It is important that if you currently have a trust, you come and see us to ensure that the current terms of the trust deed do not breach the 2019 Act, or in fact whether or not there remains a need for your maintaining the trust. We expect that as a minimum, trustees will need to carefully review their trust documents. For those that have more complicated asset planning arrangements, it is likely that you, we and your accountants and financial advisors will need to work together to ensure that all aspects of your asset planning arrangements are compliant and remain fit for purpose.
We recommend that you start the review process sooner rather than later. Our team is happy to assist with a review of your trust documents and/or any queries you may have.