(This article was prepared by Brittany Ivil, a solicitor at Holland Beckett Law)
Trusts are a firmly established mechanism for protecting and managing assets in New Zealand. The upcoming changes in trust law are long overdue. However, such changes are also sure to call into question the country’s fixation with family trusts.
The Trusts Bill (“the Bill”) was introduced on 1 August 2017, following multiple reviews conducted by the Law Commission, which branded the Trustee Act 1956 (“the Act”) as out-dated and inaccessible. The Bill is to replace this Act and also the Perpetuities Act 1964. It is intended to make trust law more manageable by clarifying the key features of a trust, outlining trustees’ powers and obligations and streamlining administration processes.
The Bill outlines 5 mandatory trustee duties which cannot be negated by the terms of a trust. Trustees will have the duty to know and act in accordance with the terms of the trust, act honestly and in good faith, act for the benefit of beneficiaries or to further the purpose of the trust, and to exercise their powers for proper use.
The Bill also establishes 10 default trustee duties which must be performed by a trustee unless modified or excluded by the terms of the trust. These default duties largely reflect current law. Both classes of duties will provide trustees with a clear understanding of their role and aid in beneficiaries holding trustees accountable for their actions, omissions and decisions.
Trustees will have to come to terms with disclosure requirements in favour of beneficiaries; a courtesy many beneficiaries are not afforded today. Part 3 of the Bill incorporates the presumption that basic information in relation the trust’s affairs must be provided to beneficiaries. The provisions specify core documents which must be kept and for how long and the factors to be considered when determining what information should be shared or withheld.
Part 4 of the Bill contains provisions concerning trustees’ powers and indemnities. Trustees’ powers are currently minimal and scattered throughout the Act. The powers under the Bill are clear and flexible; providing trustees with more discretion in managing, investing and distributing trust property.
In some aspects, the Bill endeavours to make trust administration easier and inexpensive. For example, costs are to be minimised through no longer having to apply to the court for straightforward or contested changes of trustee appointments. The High Court will still have jurisdiction to review a trustee’s act, omission or decision, extend a trustee’s powers and give orders. However, alternative dispute resolution is encouraged throughout the Bill.
Whilst the Bill will undoubtedly modernise a considerably out of date piece of legislation, the focus on trustees’ mandatory and default duties, together with the new beneficiary disclosure requirements, will impose greater compliance obligations on trustees. The additional costs of compliance may cause some to question if the administrative hassle begins to outweigh the actual benefit of keeping or forming a family trust in certain circumstances.
The Bill has yet to have its first reading, so it is crucial that settlors and trustees of existing trusts continue to be aware of the proposed changes outlined above in anticipation of the changes coming into force.