What Trustees need to know
The new Trust Act modernises trust law and makes significant changes to the way trusts are currently administered in New Zealand. The Act aims to update trust law and make the law accessible to all (not just lawyers). The Act will come into force on 30 January 2021, and will then apply to all existing written trusts, as well as any new written trusts established. It could also apply to statutory trusts or other types of non-express trusts (such as constructive or equitable trusts) if the Court decides that the Act should apply.
Why the change?
The quality of governance and administration of trusts is often well below the standards of other countries. This new law will be targeted towards those that are poorly governed, but it will result in a higher level of scrutiny on all trusts.
Your obligation as a Trustee
From 2021 your duties will be broken down into two types, Mandatory and Default.
Mandatory trustee duties include:
- 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 duty to exercise powers for a proper purpose
Default trustee duties (which can be modified or excluded by the terms of a trust) include:
- 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
The Big changes
The most controversial aspect of the new law is the obligation to make available ‘basic trust information’ to beneficiaries. In New Zealand, it’s common for not all (or sometimes any) beneficiaries to be properly engaged with trustees and often beneficiaries are unaware of trusts under which they may have an interest. As a general principle, the new law requires there to be at least a basic level of reporting to all the adult beneficiaries and to the parents/guardians of all the minor beneficiaries.
Other changes include:
- An extension of the maximum duration period of a trust from 80 years to 125 years
- Obligations on trustees to keep certain information about trusts
- A mechanism to request the court to review the decisions and actions of trustees
- Flexible powers for trustees to manage trusts
What you need to consider
These changes have many implications, especially for those who set up their trusts under the less burdensome legislation.
It may now be the situation for many where:
- As a result of increased compliance duties, the increased cost of administering a trust may no longer be a cost-effective option
- Greater transparency obligations to beneficiaries will put things in the open that some trust settlors/trustees may prefer to keep private
- A trust may no longer suit your needs and situation.
We will be contacting all our trust clients about what they need to do to update their trust and discuss the potential work involved. This is time-sensitive and needs to be addressed before the end of this calendar year so please respond to our correspondence when received or call us to discuss.
Thanks to MYOB for the source of information.