TRUSTS ACT 2019 – AN OVERVIEW
There have been significant changes recently to trust law in New Zealand.
- The Trusts Act 2019 was passed on 30 July 2019 and replaces the prior governing pieces of legislation, being the Trustee Act 1956 and the Perpetuities Act 1964.
- The Act came into effect on 30 January 2021.
- The Trusts Act codifies the duties of Trustees, and indeed places obligations on Trustees to disclose certain information about a Trust to Beneficiaries. The Act also requires a much greater degree of transparency to be provided around Trust activity.
Trust Law has been reformed in New Zealand to:
- Set out core principles of the law relating to Trusts;
- Provide default administrative rules for Trusts (trustees);
- Provide for mechanisms to resolve Trust related disputes – in the interests of keeping Trust related disputes out of court wherever possible. The Act provides for alternative dispute resolution mechanisms, such as mediation or arbitration which, from the writer’s experience, is a very positive move forward; and
- The intention is to make the law of Trusts more easily accessible.
Key Changes in Trust Law
- Trustees face increased compliance requirements now.
- One of the key changes, which indeed has attracted the most attention recently, is the fact that Beneficiaries of a Trust now need to be told that they are in fact a Beneficiary, and regularly provided with information about the Trust, without them needing to request it.
This is obviously the most contentious part of the new Act, however it really only codifies the situation that we have now found ourselves in with recent caselaw developments in this area.
The Act outlines the basic Trust information that is to be provided to every Beneficiary. Trustees are now required to inform Beneficiaries of the fact that they are Beneficiaries of a Trust, the name and contact details of Trustees, and the right to request a copy of the terms of the Trust. Collectively this is called “Basic Trust Information”. Please note that there is also an obligation now to provide that Basic Information within a reasonable period of time.
You do need to bear in mind however that most NZ Trusts are what we call ‘discretionary trusts’ and accordingly none of the beneficiaries have any fixed entitlement in terms of what they will ultimately receive from the Trust. Each of the beneficiaries only has the right to be considered by the Trustees for a distribution.
Where you have a fixed Trust however, and a beneficiary is to receive a fixed quantum from the trust at a set age, this can be very demotivating on that beneficiary, and in this situation you may well be able to invoke Section 53 of the new Act (discussed below) to avoid informing the beneficiary of their fixed entitlement.
- The Act provides that information can only be withheld from Beneficiaries in exceptional circumstances (after considering the general obligation to provide information and a series of factors as to the nature of the information and the practicalities of restricting that information). Section 53 of the Act records a number of factors that are to be considered when deciding whether to withhold the information above. These reasons include, amongst others:
- the nature and interests of the Beneficiary;
- the nature and interests of other Beneficiaries;
- the intentions of the Settlor when the Trust was established;
- the age and circumstances of the Beneficiary in question, and also the other Beneficiaries of the Trust;
- the effect of giving the Beneficiary the information; and
- the nature and context of any request for further information and any other factor a Trustee reasonably considers is relevant.
Of course, if you ever have any doubt about what information to provide Beneficiaries or whether that information should be withheld, you are always at liberty to seek further directions from the Court.
- If you have established a Trust (where you are a Trust Settlor), or if you are a Trustee, you need to commence administering the Trust in line with the new law.
- The length of a Trust’s life has been extended from a maximum of 80 years (under the old Perpetuities Act) to a new maximum of 125 years. This is also quite a significant change.
New Mandatory Duties Imposed on Trustees
There are now mandatory duties that are imposed on Trustees. These are as follows:
- Know the terms of the Trust;
- Act in accordance with the terms of the Trust;
- Act honestly and in good faith;
- Act for the benefit of the Beneficiaries, or to further the permitted purpose of the Trust;
- Exercise powers for a proper purpose.
There are also 10 default duties that apply, unless specifically excluded by your Trust Deed. These include the following:
- a general duty of care;
- a requirement to invest prudently;
- a prohibition on Trustees acting in their own interests;
- a duty to consider the exercise of Trustee’s powers;
- a duty not to fetter a Trustee’s discretion;
- a duty to act unanimously;
- a duty not to profit from the Trusteeship or benefit from the exercise of Trustee discretions.
Default duties can be modified or excluded if this is how the Settlor wants to set up the Trust,
There are new duties also that relate to the retention of Trust documentation. Each Trustee is obliged to keep copies of the Trust Deed together with any Variations to it.
Key Items to Take Away
Things you need to think about moving forward are:
- Whether you in fact are willing and able to undertake these increased obligations;
- Whether you are comfortable with the increased information to be provided to Beneficiaries;
- Whether the reasons for setting up the Trust are in fact still relevant;
- Whether the Trust will offer the same protection;
- Will the Trust still be cost effective with the extra Trust compliance requirements.
Our advice at this juncture, where you have an existing Trust in place, would be to make contact with your solicitor and ascertain whether your Trust is still relevant under the new legislation, and indeed to become fully acquainted with the new duties imposed on Trustees.
Tim Lewis – Partner – firstname.lastname@example.org – +69 972 1720