26 Nov New Trust Law to Guarantee Transparency in your Trust
For centuries, trust law in New Zealand has been taken from many sources, including the Trustee Act 1956, and court decisions. But 2021 will bring trust law reform, whereby trust law will be contained in one statute, the Trusts Act 2019 (“the Act”).
The Act, which comes into force on 30 January 2021, will ensure that trustees are held accountable in their role, and that all New Zealand trusts are operated transparently, and for the benefit of their beneficiaries.
The Act means more accountability for trustees, stronger rights for beneficiaries, and likely reviews of all pre-existing trusts to ensure they are compliant.
Disclosure to Beneficiaries
From 30 January 2021, trustees will be required to alert beneficiaries to the fact that they are beneficiaries of a particular trust and provide them with “basic trust information”. Information to be provided will include the names and contact details of the trustees, details of any changes in trusteeships as they occur, and informing the beneficiary of their right to request a copy of the trust deed or other trust information.
The right for beneficiaries to request trust information, beyond the “basic trust information” will provide beneficiaries with an avenue to ensure the trustees are managing the trust properly. “Trust information” includes financial accounts, any variations to the trust deed, deeds of gift, and more. The trust is, first and foremost, for the benefit of the beneficiaries, and the new Act seeks to hold trustees accountable to this purpose.
Understandably, this disclosure requirement has sparked concern that familial relationships may become strained, beneficiaries, complacent as a result of their expectation of receiving an inheritance, and claims made against trustees over assets that beneficiaries think they are entitled to.
For this reason, the Act provides a list of 13 exemptions. If an exemption applies to a particular beneficiary, disclosure to that beneficiary will not be required. These exemptions apply in relation to both basic trust information, and trust information.
The Role of Trustees
The new Act will mean more obligations on trustees, and less indemnity.
First and foremost, there are five duties imposed on trustees that are mandatory. These duties represent the backbone of trust law, and are not new. They have now simply been codified into New Zealand law. Trustees must:
- Know the terms of the trust, and each have their own copy of the trust deed;
- Act in accordance with the terms of the trust;
- Act honestly and in good faith;
- Act for the benefit of the beneficiaries; and
- Exercise their powers for proper purpose.
Trustees should already be acting in this manner.
Furthermore, trustees cannot be indemnified for any breach of their obligations arising from dishonesty, wilful misconduct, or gross negligence. This essentially means that trustees are held to higher standards, especially professional trustees who are considered experts in the field.
Administration of trusts may increase for some trusts, as trustees must regularly and actively review management of the trust to ensure it is operating correctly. This includes regular reassessment of whether further disclosure of basic trust information should be made to beneficiaries from whom it was previously withheld.
Lastly, trusts can now have a maximum lifespan of 125 years; a 45-year increase on the existing 80-year perpetuity rule.
Now is a great time to review your trust. If it no longer has significant purpose, and your asset protection position would be the same without it, you might consider winding up your trust. We will be contacting our trust clients shortly with more detail on how the Trusts Act 2019 may affect their trusts, and to assist them with ensuring their trusts remain relevant and compliant.