The new Trusts Act 2019 is on the horizon, due to take effect on 30 January 2021. This new Act is a significant overhaul of the current NZ Trust law system. In fact, it’s the first major update to trust legislation in 70 years. The Act is designed to restate and clarify current Trust law, a lot of which was already in place, but by way of case law. If you are a trustee of a trust, or indeed a beneficiary of a trust, there are changes that you need to make yourselves familiar with.
Most New Zealand Trusts are used to hold assets, and historically may not have always had a lot of involvement from Trustees. With the new Act, Trustees are expected to manage their Trusts much more directly. There are increased obligations and responsibilities imposed by the Act – its possibly a good time to consider whether your current trustees are willing to act under the new legislation. It may be time to consider whether the core reasons for originally setting up the trust still apply, and whether there is a need to wind up the trust that you have.
What are the new obligations for Trustees as laid out by the new Act?
There is a new range of duties that Trustees must now carry out, and these are divided into two main groups; mandatory and default.
Mandatory duties—as the name suggestions—aren’t optional. Default duties also apply to all trusts, unless they are modified or excluded (where possible) by the Trust deed. This means Trustees should expect to manage all of the new duties in the Act, unless otherwise varied by agreed/permitted changes to the trust deed. If the default duties have not been amended or varied by way of the Trust Deed then they also apply to Trustees who must then comply with those also.
What are Trustees expected to do?
Trustees are expected to know the terms of the Trust and act accordingly, act in good faith and for the benefit of the beneficiaries and exercise their powers for a proper purpose. Unless specified in the Trust Deed, the Act sets out other duties Trustees should comply with. These include investing prudently, exercising reasonable care and skill and not acting in a way that benefits the Trustee personally. This can be an issue where the Trustee is also a beneficiary and care should be taken to ensure that this is allowed for in the Trust Deed.
Trustees are also expected to retain copies of core Trust records. These can be paper or electronic copies and include the following:
- The Trust Deed and any other documents which contain the terms of the Trust
- Amendments and variations to the Trust Deed or Trust
- Documents for the appointment, removal and discharge of Trustees
- Records of the Trust property which identify the Trust assets, liabilities, income, and expenses which are appropriate to the value and complexity of the trust property
- Record of Trustee decisions
- Any written contracts entered into by the Trust
- Accounting records and financial statements memorandum of wishes from the settlor
- Any other documents necessary for the administration of the Trust
- Documents referred to above that were kept by a previous Trustee and passed onto the current Trustee
Each Trustee must keep copies of the trust Deed and variations and have access to the other Trust records which may be held by one Trustee.
The default duties that must be performed by Trustees unless they are modified or excluded in the trust deed (or by way of a subsequent variation of the Trust Deed):
- Investing prudently
- Not exercising their power for their own benefit
- Acting impartially between beneficiaries
- Not to profit from the Trusteeship of the Trust
- Act unanimously with the other Trustees
- Regularly and actively consider the exercise of Trustee powers
- Not binding or committing Trustees to the future exercise or non-exercise of discretion
- Avoid conflicts of interest between beneficiaries and trustees
- Not to take reward for being a Trustee
Trustees are expected to give basic trust information about the Trust to ALL beneficiaries (or their representative). This information includes:
- The existence of the Trust and that they are a beneficiary
- The names and details of the Trustees, and any changes to the Trustees when these occur
- The beneficiaries right to request a copy of the Trust Deed and Trust information
The beneficiaries have the right to request further information from the Trustees which can include details of assets, distributions and loans that the trust has made and to whom. This could be of some concern to settlors where this information has not previously been made available to beneficiaries. There are a number of instances where the Trustees can decline the request or limit the information provided – as a Trustee you need to consider what the requirements will be for your trust and take advice accordingly.
Should you review your trust?
Put simply, yes. Trusts should be reviewed now and again as a matter of course, so if you haven’t reviewed a trust in some time, now is a perfect opportunity, given the major change in trust law. Does the original purpose for having your trust still exist, are the trustees still willing and able to act, are the classes of beneficiary too wide – just examples of some of the matters to be thought through.
This article covers some of the main points of the new Act, but each trust is unique. Each trust entity will likely need its own specific adjustments to factor in the new legislation.
The team of accountants and partners at BDO are skilled in dealing with Trusts for a wide range of clients and business activities. This does not in any way dismiss your need to involve your professional legal advisers in considering how these legislative changes will affect your Trust. This material is only intended to be of a generally informative nature. We believe that the best outcome for you is for your advisers to jointly be involved in reviewing your trust and whether it is still fit for your purpose for the future.