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Important Changes to Trust Law

Trusts Act 2019

As of 30 January 2021, significant changes were made to New Zealand trust law. Therefore, trustees are to review their current trust arrangements and make any necessary changes, in order to comply with the Trusts Act 2019.

The Trusts Act 2019 is the first major rewrite of trustee legislation since the Trustee Act 1956. Many of the key changes are aimed at making trust law more accessible to both lawyers and the public, strengthening the ability of beneficiaries to hold trustees to account.

The Changes

Trustee Duties

The requirements placed on trustees are higher and more onerous. Trustees cannot plead ignorance to these new laws and are expected to not only know about the changes but adhere to new requirements. The Trustee duties are now formalised and set out in legislation.

The new Act separates Trustee duties into two areas as follows:

Mandatory Trustee Duties:

Duty to know the terms of the Trust;
Duty to act in accordance with the terms of the Trust;
Duty to act honestly and in good faith;
Duty to act for the benefit of beneficiaries or to further the permitted purpose of the Trust;
Duty to exercise powers for a proper purpose.

Default Trustee Duties:

General duty of care;
Duty to invest prudently;
Duty not to exercise power for own benefit;
Duty to consider exercise of power;
Duty not to bind or commit trustees to future exercise of discretion;
Duty to avoid conflict of interest;
Duty to act impartially;
Duty not to profit;
Duty to act for no reward;
Duty to act unanimously.

Mandatory duties must be performed by the trustee and may not be modified or excluded by the terms of the trust. Any purported exclusion of a mandatory duty will have no effect.
Default duties can be modified or excluded by the terms of the Trust.

Trustee’s Obligation to Retain Core Trust Documents:

Every trustee must keep a copy of the trust deed and any variations.
At least one trustee must keep the other core trust documents including details of the trust assets and liabilities, contracts entered into by the trust, financial statements, records of trustee’s decisions and any settlor’s memorandum of wishes

Information Required for Beneficiaries:

As a minimum, trustees are now required to provide beneficiaries with basic Trust information. This is a positive obligation on trustees to provide this information that applies even if the beneficiary has not requested any information about the trust.

Basic Trust Information Is:

That they are a beneficiary of the trust;
Who the trustees are and their contact details;
Advice regarding any changes of trustee;
That as a beneficiary they have the right to receive a copy of the trust deed and further information about the trust; and
On an ongoing basis, Beneficiaries will need to be kept informed of the administration of the Trust.

Trust Information is Defined in the Act as Meaning any Information:

Regarding the terms of the Trust, the administration of the Trust, or the Trust property; and
That it is reasonably necessary for the beneficiary to have to enable the Trust to be enforced; but
Does not include reasons for Trustees’ decisions.

Other Changes to the Act Include:

Reduction of the age of majority from 20 to 18 (when a person can inherit if a specific age is not specially stated);
The new Act will also extend the maximum period of a Trust from 80 years to 125 years. This will be the default maximum permitted lifetime of a Trust, unless a lower maximum period is specified in the Trust deed;
Changes to the grounds on which the court may review trustee decisions; and
New alternative dispute resolution procedures.

What Does This Mean for Me?

For trusts existing before the Trusts Act, you will need to consider the following:

If you’re willing and able to undertake the increased obligations;
If you’re comfortable with the increased information provided to beneficiaries as greater transparency will mean that infomation that some trust owners might prefer to keep private will no longer be private;
If you still willing to be a trustee of a trust given the obligations imposed on you;
If the reasons for setting up the trust are still relevant;
If the trust will offer the same protection; and
If the trust will still be cost-effective with the extra trust compliance requirements as compliance duties will increase the time and cost of administering some trusts, meaning some are no longer cost-effective.

Next Step:

Contact Conway Lane Law to review your trust documentation.

Disclaimer:

The above information is of a general nature only. The information contained in this document does in no way constitute legal advice and all readers should contact Conway Lane Law for advice relating to your specific circumstances.