The new Trusts Act 2019 will come into force on 30 January 2021. This is the first major reform to trust law in New Zealand which provides greater transparency of trustee activities and increased trust compliance requirements.
If you are a settlor or a trustee of a trust (or family trust), it is important to review your trust in light of any personal, legal and policy changes provided under the new Act.
Here are some of key changes to the new Act.
Formalised roles of Trustee and Beneficiary
The Trusts Act incorporates a new concept by classifying the duties as either ‘mandatory’ or ‘default’.
Mandatory duties must be performed by the trustee and may not be modified or excluded by the terms of the trust. Otherwise, it may be evidence that there was no intention to create a trust and will undermine the asset protection strategy if the trust is ever challenged.
The mandatory duties include that the trustees must:
- Know the terms of the trust
- Act in accordance with the terms of the trust
- Act honestly and in good faith
- Act in the interest of the beneficiaries in accordance with the terms of the trust deed
- Exercise their powers for a proper purpose
These default duties include a general duty of care, which the trustees must perform unless they have been excluded or modified in the trust deed.
Some of the general duties of care include:
- Duty to invest prudently
- Duty not to exercise power for own benefit
- Duty to consider exercise of power
- Duty to include to avoid conflict of interest
- Duty not to profit
- Duty to act unanimously
If your current trust deeds already excluded some of the default duties, this will continue to be acceptable provided that the exclusions fit within the permitted limits.
Obligation to give certain information to beneficiaries
The Act creates a presumption that a trustee must make ‘basic trust information’ available to every beneficiary and ‘trust information’ available to beneficiaries who request it. The purpose of such disclosures is to hold the trustees accountable for their duties and obligations.
“Trust information” is information that it reasonably necessary for the beneficiary to have to enable the trust to be enforced. However, before providing the trust information, the trustees must consider a range of factors and if the trustee reasonably considers that the information should not be disclosed, then it may withhold the information.Those factors, amongst other things, include:
- The nature and interests of the beneficiary (such as the likelihood of the beneficiary receiving trust property in the future)
- Whether the information is subject to personal or commercial confidentiality
- 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 on trustees and other beneficiaries of the trust of providing the information; and
- Other factors a trustee reasonably considers is relevant.
Trustees will have to carefully consider any decision not to disclose information.
Replacement of the Rules Against Perpetuities
Previously the maximum duration was 80 years after which the property had to be vested upon beneficiaries. The Act now establishes a definite, extended maximum duration of 125 years for most trusts.
Record retention requirements
The Act prescribes what information trustees should keep and for how long. Each trustee will be obliged to keep copies of the trust deed and any variations.
Trustees must keep their own copies of ‘core trust documents’ or at least one of the other trustees holds all of the core trust documents and will make them available on request.
Restrictions on exemption and indemnity clauses
The Act makes it clear that trust deeds must not limit a trustee’s liability or provide an indemnity for dishonesty, wilful misconduct or gross negligence.
Any terms in a trust deed that purport to limit the liability of the trustee or to indemnify them in breach of these provisions is invalid. Trustees should be aware of these restrictions when acting.
If you are involved in or thinking of establishing a trust, we recommend talking with us about how the new Trusts Act will affect you.
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice.