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Changes to Trust Law

Changes to Trust Law

The new Trusts Act 2019 will come into effect on 30 January 2021. Much of the Act updates or restates law that exists already, either in statute or in case law. There are, however, a number of changes about which trustees and settlors should be aware.


If you have a trust or are a trustee of a trust you need to be aware that the Trusts Act was updated last year. The new act obtained Royal assent on 30 July 2019, the final stage in becoming an Act of parliament, and is now the Trusts Act 2019 (the Act). The Act makes important changes to trust law in New Zealand and replaces the Trustee Act 1956 and the Perpetuities Act 1964. The Act will come into force in 18 months’ time on 30 January 2021.


It is important that trustees and beneficiaries are aware of the changes and the impacts on their rights and obligations and that trustees use this 18-month transition period to ensure their practices align with the provisions of the Act.

The changes


The Act is intended to modernise and clarify trust law, codify the mandatory and default duties on trustees, simplify the core principles of a trust and provide mechanisms to resolve trust-related disputes. Some of the most notable changes include:


  1. The codification of mandatory and default trustee duties:
    The five mandatory duties cannot be excluded or modified by the trust deed and impose on all trustees a duty to know the terms of the trust, a duty to act in accordance with those terms, 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.

  2. 2. The ten default duties apply unless expressly excluded by the trust deed and include a duty to invest prudently, a duty not to exercise power for their own benefit, a duty to avoid a conflict of interest and a duty to act unanimously.
    3. The length of a Trust’s life has been extended from a maximum of 80 years to a maximum of 125 years.
    4. Requirements for management and disclosure of trust information to beneficiaries. The Act sets out what information trustees must keep and how long documents must be kept. 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 Act favours keeping beneficiaries informed and clearly outlines the basic trust information that is to be provided to every beneficiary. The process of disclosing information also includes a requirement on trustees to notify all those who are qualifying beneficiaries.
    We recommend that you review your trust; and discuss with your lawyer whether the trust is meeting your needs.

Mandatory duties


Mandatory duties cannot be modified or excluded by the trust deed so all trustees will be required to abide by these duties.

These duties are to:
• Know the terms of the trust
• Act in accordance with the terms of the trust
• Act honestly and in good faith
• Deal with the trust property and to act for the benefit of the beneficiaries in accordance with the terms of the trust deed, and
• Exercise the trustees’ powers for a proper purpose.

Default duties


Default duties are obligations by which trustees must abide — unless the settlor decides otherwise when the trust is established. These default duties include 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 trustees’ powers, a duty not to fetter a trustee’s discretion, a duty to act unanimously and duties 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 a trust. For example, a settlor might want the trustees to be able to purchase depreciating assets such as retirement village units. The settlor may want trustees to be able to act with a majority in favour of any particular decision, or it may be desirable to allow a trustee (who is also a beneficiary) to take part in decisions despite a conflict of interest.

Trust documentation


Trustees will also have new duties relating to trust documentation. This should bring a new level of rigour to trust record-keeping, which can sometimes be lacking.
Each trustee will be obliged to keep copies of the trust deed and any variations. They will have to either keep their own copies of ‘core trust documents’ (which are defined in the Act) or to ensure that at least one of the other trustees holds all of the core trust documents and will make them available on request. If a trustee is not confident in their fellow trustees’ ability with paperwork, they will need to keep these documents personally.

Beneficiary access to basic trust information


The Act also creates a presumption that ‘basic trust information’ must be made available to beneficiaries. That includes information that a person is a beneficiary of the trust, the name and contact details of the trustees, details of trustee changes as they occur and the beneficiary’s right to request further trust information.

There is also a presumption that if a beneficiary requests further trust information, including a copy of the trust deed, the trustee must provide that information within a reasonable period of time. The trustee may ask the beneficiary to pay the reasonable costs of providing that information.

Trustees do have the ability to decide that either, or both presumptions, do not apply. A list of factors is set out in the legislation and the trustees must consider these factors when deciding whether these apply in the circumstances.

Those factors include, amongst other things:


• The nature and interests of the beneficiary (including whether the beneficiary is likely to receive trust property in the future)
• 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 the other beneficiaries of the trust
• The effect of giving the beneficiary the information
• The nature and context of any request for further information, and
• Any other factor a trustee reasonably considers is relevant. Trustees will have to carefully consider any decision not to disclose information.

 

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