NEW TRUST LAW – BE AWARE!
It is estimated that there are some 300-500,000 trusts currently in existence in New Zealand. For many New Zealanders, trusts have played an important role in long-term asset management and succession planning.
Over the past several years, the New Zealand Law Commission has undertaken a detailed review of the law regulating how trusts operate currently and what changes could be made to bring the legislation into the 21st century. Following the Commission’s recommendations, the Government has passed the Trusts Act 2019, which will come into force on 30 January 2021.
The main purposes of the new legislation are to embody in one statute principles that have been established by over 60 years of case law and to modernise trust structures to reflect the current environment in which we manage our assets. Once the new Act comes into force, it will apply to all trusts whether they are in existence now or created in the future.
The new Act contains a large number of changes, but those which are likely to have the largest impact can be broadly broken down into 3 categories:
the duties of trustees;
the rights of beneficiaries:
the way disputes are resolved.
The new Act expressly imposes a number of mandatory obligations on trustees, such as acting honestly and in good faith, and knowing and acting in accordance with the terms of the trust. It also imposes default duties on trustees which will automatically apply to all trusts unless expressly excluded by the Trust Deed. These duties include acting unanimously and avoiding conflicts of interest. Many of these duties already exist (through case law) but are now expressly included in the statute.
All trustees will also now be required to keep certain core documents, such as the trust deed and any financial statements, for the entire life of the trust, and at least one trustee will be required to keep all trust documents including all minutes and resolutions.
The new Act allows greater scope to a trustee when exercising their powers as trustees, such as allowing the removal of trustees who have lost mental capacity without requiring a Court order, changing the rules on how trustees delegate their powers, and imposing mandatory considerations for trustees when deciding to provide beneficiaries with information about the trust.
Rights of Beneficiaries
Beneficiaries will enjoy better access to trust information. There is now a presumption that trustees will advise every beneficiary of certain trust information such as the fact they are a beneficiary, and their right to request trust information – including the terms of a trust, the trust property, or any information that is reasonably necessary for the beneficiary to have to enable the trust to be enforced.
The new Act also makes alternative dispute resolution pathways available for trust disputes. In the past, trust disputes have largely been dealt with by the Courts which can be time consuming and expensive. Alternative dispute resolution will aim to resolve trust disputes faster and at a lower cost for the parties involved.
These changes mean that anyone with a trust should over the next few months review their trust and, among other things, consider firstly, whether the trust is currently fit for its intended purpose and secondly, whether it will continue to be fit for its intended purpose once the new Act comes into force. If the answer to either of those questions is “no” – or “possibly”, now is the best time to make any necessary changes. Also all trustees should obtain advice on what their responsibilities will be when the new legislation comes into effect.
The team at Harmans have the knowledge to help you navigate these changes and advise on your roles and responsibilities. Please contact a member of our team if you have any questions or would like more information about the impact that the Trusts Act 2019 will have on your trust. We are taking the initiative with our existing clients with trusts and will be in direct contact over the next months to ensure that our clients are aware of the imminent changes and are in possession of all relevant information.