Long awaited changes to New Zealand’s trust laws have arrived. The Trusts Act 2019 obtained Royal assent in July of this year, with the majority of changes coming into effect on 30 January 2021.
The new Act replaces the Trustee Act 1956 and the Perpetuities Act 1964.
Generally, the Trusts Act (the Act) intends to clarify existing trusts law to make trusts more accessible and transparent, but it also brings a number of significant changes that trustees and settlors need to be aware of.
Increased duties and disclosure
As part of the effort to make the law more accessible, the Act has listed mandatory and default duties that trustees will, or may, be bound by from January 2021.
Mandatory duties are those that a trustee must comply with and cannot be changed by the terms of the trust. The five imposed by the Act are duties to:
- know the terms of the trust
- act in accordance with these terms
- act honestly and in good faith
- act for the benefit of the beneficiaries, and
- exercise powers for their proper purpose.
Default duties are the obligations that must be performed by trustees unless they are changed by the terms of the trust. The Act imposes ten of these duties, which include:
- a general duty of care
- a prohibition against trustees acting in their own interests
- a prohibition against limiting a trustee’s discretion
- a duty not to profit from the trust
- a duty to act unanimously, and
- a duty to act for no reward.
Disclosure of information
Somewhat contentiously, the new law requires trustees to be more transparent with beneficiaries regarding trust information. The changes were made to ensure that beneficiaries have access to sufficient information to enforce the terms of the trust against the trustees.
The Act will now require that trustees must make available to all beneficiaries (or their parent or guardian in the case of minors) ‘basic trust information’. Such information includes:
- the knowledge that a person is a beneficiary of a trust
- the name and contact details of the trustees
- the awareness of any change of trusteeship, and
- the knowledge of their right as beneficiaries to the terms of the trust or other trust information.
Under the new law, if a beneficiary attempts to exercise their right to access other trust information or the trust deed, this request must be satisfied by the trustee within a reasonable period of time.
A trustee may deny a beneficiary access to either the ‘basic trust information’ or any further requested information if they believe it is reasonable to do so.
In deciding this, a trustee must consider a number of factors, including, among other things:
- the nature of the interest held by the beneficiary and other beneficiaries (including the extent of the interest and the likelihood it will be received)
- the effect of giving the information (for example on family relationships)
- the age and circumstances of the beneficiaries
- the practicalities of giving the information, and
- any other factor the trustee reasonably considers to be relevant.
These changes are significant, especially for settlors and trustees who did not intend, when creating a trust, that this information would be available to every beneficiary. Older trusts in particular will need to consider how these changes will affect them, due to the common practice of having a wider class of extended family members as the beneficiaries, all of whom will now be entitled to the trust information.
Further changes that will be significant to trustees and settlors include:
- the extension of the allowed maximum duration of a trust from 80 years to 125 years
- a further obligation on all trustees to keep certain documents that relate to the trust, and
- the introduction of an Alternative Disputes Resolution (ADR) mechanism which encourages disputes concerning trusts to be settled out of Court, either through arbitration or mediation.
What these changes mean for your Trust
Existing trusts have until January 2021 to ensure they are compliant with the Act.
- Existing trust documents should be reviewed to ensure that they don’t include terms that are inconsistent with the now-mandatory duties and that the default duties apply to your trust to the extent that you intend.
- Review the beneficiaries of your trust. Lots of older trusts include spouses, former spouses and distant relatives as beneficiaries. You should
ensure that you are comfortable with the current beneficiaries and consider changing them if not. Some trust deeds allow you to remove beneficiaries,
others do not. The level of transparency required by the new Act means that information you consider private may soon have to be disclosed.
- If you are considering reviewing your trust or creating a new trust, discuss these changes with your legal advisor, to ensure documents are drafted to take the new law into account.
What these changes mean for you
- Consider, whether as a settlor or trustee, you are comfortable with the increased disclosure of potentially private information to each beneficiary of your trust
- Consider, whether as a trustee, you are willing and able to comply with any increased duty or obligations brought about by the mandatory or default duties listed under the Act.
If you would like to learn more about these changes, our Trusts & Asset Planning team will be happy to help, please give us a call.
Our thanks to Kezia Purdie and Alice Chapman for writing this article.