The Trusts Bill passed its third reading in Parliament on 24 July and is now awaiting royal assent to become an Act of Parliament. This is the final stage of a complete overhaul of New Zealand’s trust law that began more than ten years ago. There will be an 18 month transition period before your trust must comply. Its intention is to make trust law more accessible, clarify and simplify core trust principles and essential obligations for trustees, and preserve the flexibility of law set down by the Courts to allow this area of the law to continue to develop.
The Trusts Act makes a number of key changes to existing trust law, so now is time to start thinking about your trust and what this might mean for you:
Under the new Act, Trustees are required to keep copies of core trust documents. Core documents include the trust deed and any variations; details of trust assets and liabilities; financial statements; contracts entered into by the trust, records of trustee decisions; settlor letters and any memoranda of wishes.
These core documents must be kept for the lifetime of the trust, which will require financial statements to be held for longer than other legislation requires. This obligation has changed how we will hold and manage the trust documentation we currently hold for you, or that you would like us to hold in future.
Disclosure to Beneficiaries
There is a positive obligation on trustees, in most cases to notify the beneficiaries of a trust that they are beneficiaries and that they have the right to request further details about the trust. This is a significant change to the Act, and could require some consideration, especially if the settlors did not anticipate such disclosure when settling their trust.
The Act details what trustees must consider when deciding whether to notify a beneficiary that they are named as a beneficiary, as well as whether information requested by a beneficiary must be provided. While these considerations largely reflect existing law, trustees will need to take special note of their obligations around disclosure and consider how disclosure should be managed, as well as the impact that beneficiaries being aware of a trust may have on likely requests for further information about the trust.
If you require assistance notifying the beneficiaries of your trust, or in dealing with requests from them for further information, in order to help you meet the required obligations we are able to do this on your behalf.
Duties of Trustees
The new Trusts Act sets out mandatory and default duties of trustees. The mandatory duties set out the basic obligation for trustees to know and follow the terms of the trust, act honestly and for the benefit of the beneficiaries and according to the proper purpose of the trust. The default duties may be modified or excluded by the terms of the trust deed and cover duties such as obligations of trustees’ upon investment, conflicts of interest and the requirement to act unanimously. You will likely need to consider the terms of your trust in light of these new duties, and determine whether any variations should be made to the Trust Deed as a result. If you intend to make changes, whether this is done by us, or by your lawyer, please remember to provide us with details of any variations, and a copy of the new Deed.
There will be changes to the rules that apply to the ability to exclude or limit liability of trustees and their rights to be indemnified from trust property. These changes will change how we, manage trusteeships where we act as professional trustees, and we will be in contact with you regarding updated indemnity documentation.
Delegation of Trustee Powers and Functions
There are increased circumstances in which a trustee may delegate their powers and functions, but the timeframe during which delegation is effected will be restricted.
There are also additional provisions governing how trustees may be appointed and removed and how trusts may be varied and resettled.
Trust Deeds will be able to permit disputes between the trustees themselves or between the trustees and one or more of the beneficiaries to be determined by alternative dispute resolution.. This will also allow trustees to give undertakings to settle disputes, which will be binding on their future actions.
Traditionally Trusts have had a maximum duration of 80 years. The new Act extends this maximum to 125 years.
The new Trust legislations increases rights and protections for beneficiaries, but also impose more responsibility and prescriptive requirements on the trustees of family trusts. The changes are likely to make trusts more transparent for beneficiaries but will require increased administration for trustees, which may require changes both to trust documentation. However, it will give this areas of the law a much needed update.
The new rules will apply to both new and existing trusts, and we therefore advise that all trusts are reviewed in light of the new legislation and this may involve considering whether it is appropriate to vary or wind up your existing trusts.
We have recently communicated with you regarding the changes we will be implementing, and over the next 18 months, we will continue to provide you with specific advice. In the meantime, if you have any questions about how the new Trusts Act or the changes we are making will affect your trust, please contact us.