The new Trust Act is nearly here
After a long process, the Trusts Act 2019 gained Royal Assent last year. It replaces the current Act from 1956 that pre-dated the increased popularity of trusts in New Zealand.
The new Act comes into force on 31 January 2021. Much of the content of the new Act is to make the existing legislation more modern and user-friendly in light of the large number of people who have settled (created) trusts and act as trustees.
However, there are six important areas of change that each require careful consideration.
1. Beneficiary disclosure requirements
The stated purpose of this is to ensure that beneficiaries have sufficient information to enable the terms of the trust and the trustees’ duties to be enforced against the trustees.
It requires trustees 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 and trust information.
This means any information;
regarding the terms of the trust, the administration of the trust, or the trust property; and
that it is reasonably necessary for the beneficiary to have to enable the trust to be enforced; but
it does not include reasons for trustees’ decisions.
A trustee is required to consider at reasonable intervals whether the trustee should be making the basic trust information available under this section.
There is a presumption that a trustee must, within a reasonable period of time, give a beneficiary or the representative of a beneficiary the trust information that person has requested.
Disclosure requirements don’t apply to beneficiaries who are minors, but do apply to discretionary beneficiaries.
There is an extensive list of situations where the disclosure of information to beneficiaries can be denied that are outlined in Section 53 of the Act which can be found here. However, in some cases it may require an application to the court for directions.
2. Perpetuity period extended to 125 years
As peoples’ life expectancy is now longer, the life of a trust can now be extended from the current maximum of 80 years to 125 years. To enact this would require a variation of the trust deed.
3. Mandatory duties
The following duties will become mandatory.
A trustee must know the terms of the trust.
A trustee must act in accordance with the terms of the trust.
A trustee must act honestly and in good faith.
Duty to act for benefit of beneficiaries or to further permitted purpose of trust.
A trustee must hold or deal with trust property and otherwise act;
a. for the benefit of the beneficiaries, in accordance with the terms of the trust:
b. in the case of a trust for a permitted purpose, to further the permitted purpose of the trust, in accordance with the terms of the trust.
Duty to exercise powers for proper purpose.
4. Default duties
The following duties will be required unless the trust deed is varied to enable the trust to opt-out of any.
General duty of care.
When administering a trust (other than when exercising a discretion to distribute trust property), a trustee must exercise the care and skill that is reasonable in the circumstances, having regard, in particular;a. to any special knowledge or experience that the trustee has or that the trustee holds out as having; and
b. if the person acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.
Duty to invest prudently. When exercising any power to invest trust property, a trustee must exercise the care and skill that a prudent person of business would exercise in managing the affairs of others, having regard, in particular;
a. to any special knowledge or experience that the trustee has or that the trustee holds out as having; and
b. if the person acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.
A trustee must not exercise a power of a trustee directly or indirectly for the trustee’s own benefit
A trustee must consider actively and regularly whether the trustee should be exercising 1 or more of the trustee’s powers.
A trustee must not bind or commit trustees to a future exercise or non-exercise of a discretion
A trustee must avoid a conflict between the interests of the trustee and the interests of the beneficiaries.
Duty of impartiality
a. A trustee must act impartially in relation to the beneficiaries, and must not be unfairly partial to one beneficiary or group of beneficiaries to the detriment of the others.
b. This section does not require a trustee to treat all beneficiaries equally (but all beneficiaries must be treated in accordance with the terms of the trust)
A trustee must not make a profit from the trusteeship of a trust.
A trustee must not take any reward for acting as a trustee, but this does not affect the right of a trustee to be reimbursed for the trustee’s legitimate expenses and disbursements in acting as a trustee
If there is more than one trustee, the trustees must act unanimously.
5. Record keeping
Each trustee of a trust must keep, so far as is reasonable, the following documents relating to the trust;
the trust deed and any other document that contains terms of the trust:
any variations made to the trust deed or trust:
records of the trust property that identify the assets, liabilities, income, and expenses of the trust and that are appropriate to the value and complexity of the trust property:
any records of trustee decisions made during the trustee’s trusteeship:
any written contracts entered into during that trustee’s trusteeship:
any accounting records and financial statements prepared during that trustee’s trusteeship:
documents of appointment, removal, and discharge of trustees (including any court orders appointing or removing trustees):
any letter or memorandum of wishes from the settlor:
any other documents necessary for the administration of the trust:
any documents referred to in paragraphs (1) to (9) that were kept by a former trustee during that person’s trusteeship and passed on to the current trustee.
A trustee must keep, so far as is reasonable, the documents for the duration of the trustee’s trusteeship.
At the time that the trusteeship of a trustee ends, if the trust continues, the trustee must give at least 1 replacement trustee or continuing trustee the documents that the trustee holds at that time.
The record-keeping requirements can be satisfied if you know that at least one other trustee holds the other documents specified and that those documents or copies of them will be made available to the other trustee or trustees on request.
6. Restriction on trustee exemption and indemnity clauses
The terms of a trust must not limit or exclude a trustee’s liability for any breach of trust arising from the trustee’s dishonesty, wilful misconduct, or gross negligence.
The terms of a trust must not give a trustee any indemnity against the trust property for liability for any breach of trust arising from the trustee’s dishonesty, wilful misconduct, or gross negligence.
Ongoing requirement to have a trust
This may also be an opportune time to review whether the trust is still required. Peoples’ needs change over time. The original reasons for establishing the trust may not still be valid to a degree that warrants the ongoing effort and expense of maintaining it. Tax benefits and the ability to deprive parties of income or assets in order to achieve residential care subsidies have also been diminished. The requirements for asset protection from potential creditors also may have changed.