We now have a new piece of legislation that deals with Trusts – the Trusts Act 2019. The new Act doesn’t make sweeping changes to the law applicable to Trust in New Zealand, instead it largely restates the existing law in a way that is more accessible to those who use and interact with Trusts.
Whilst the new Act was passed last year, it doesn’t come into force until 30 January 2021 (there is some debate amongst the law fraternity on the actual commencement date with some suggesting that its 31 January 2021 – either way its in the weekend) so you still have time for you to get a better handle on what this might mean for you and your Trust, and get some specialist advice, if you think you need it.
Here are some of the key aspects that we think you should know about.
Disclosure of information to beneficiaries
The Act places a positive duty on trustees of a Trust to provide basic trust information to the beneficiaries of that Trust. Remembering that a trust is more than the trustees, the trustee’s hold the assets on behalf of the beneficiaries. The basic trust information that trustees are required to give to beneficiaries is:
- the fact that they are a beneficiary;
- the name and contact details of the trustees;
- the details or removals and appointments of trustees; and
- the right of a beneficiary to request a copy of the trust deed and/or trust information.
If a beneficiary or a representative of a beneficiary requests trust information, there is a presumption that the trustees must, within a reasonable period of time, give the beneficiary or the representative the trust information that has been requested.
Whilst there is a presumption in favour of disclosure, there are circumstances where it is reasonable for trustees to refuse to disclose basic or additional trust information. The Act lists certain factors that trustees must considered before refusing disclosure.
Duties of trustees
Trustees have a number of duties – things that the law requires them to do in relation to the Trust. At the moment most of these are common law duties (established through cases) rather than statutory duties (set out in legislation).
The new Act changes this and codifies a number of the settled common law duties. There are two categories of under the Act – mandatory duties and default duties. The mandatory duties apply to all trusts and cannot be excluded by the trust deed. The mandatory duties are:
- The duty to know the terms of a trust
- The duty to act in accordance with the terms of a trust
- The duty to act honestly and in good faith
- The duty to act for the benefit of beneficiaries or to further the permitted purpose of a trust
The default duties apply except to the extent that they have been modified or excluded by the Trust Deed). The default duties are:
- The general duty of care
- The duty to invest prudently
- The duty not to exercise a power for a trustee’s own benefit
- The duty to consider the exercise of a power
- The duty not to bind or commit trustees to future exercise of discretion
- The duty to avoid a conflict of interest
- The duty of impartiality
- The duty not to profit
- The duty of a trustee to act for no reward
- The duty to act unanimously
All trustees need to understand and ensure that they comply with these duties.
Under the Act, trustees are required to keep core trust documents for the duration of the trustee’s trusteeship and must pass these documents on to replacement trustees, to ensure trust records are retained for the lifetime of the trust.
The core trust documents that trustees are required to keep are
- The trust deed and any other document that contains terms of the trust;
- Variations made to the terms of the trust;
- Records of the trust property that identify the assets, liabilities, income and expenses of the trust – in most cases, we suggest preparing annual financial statements each year;
- Accounting records and financial statements;
- Records of trustee decisions;
- Written contracts;
- Documents of appointment, removal and discharge of trustees;
- Memorandum of wishes from the settlor; and
- Any other documents necessary for the administration of the trust.
What does this mean for you?
Whilst the new Act doesn’t significantly change the law relating to Trusts, it is still sensible for those with Trusts to review their Trust arrangements, not only to ensure that they are compliant and that their Trust documents are still fit for purpose, but also to check whether their Trust still serves a purpose.
We are finding, more often than not, that many of the reasons why clients originally established their Trusts no longer exist (e.g. estate duty planning). If they do still exist, often the Trust is no longer the best solution. In these cases, it may be appropriate to wind the Trust up. If your trust still serves a purpose, you should at least review who the beneficiaries are, as there was a time where the legal view was to add all and sundry.
If you would like any further information on the Act, or if you would like to discuss whether your Trust is still appropriate in your circumstances, please get in touch.