Changes to Trust legislation have been made, with the provisions of the new Trusts Act 2019 coming into effect on 30 January 2021. Now is the time to take action to ensure that you are prepared for these changes.
The Trusts Act 2019 is the first major rewrite of trustee legislation since the Trustee Act 1956. The new Act is intended to update existing Trust law, making it more accessible for all New Zealanders and ensuring that beneficiaries have enough information so that the terms of the Trust are being carried out properly.
Major ChangesTrustee DutiesThe new law differentiates between mandatory duties and default duties.
Mandatory duties include
Default duties will apply to existing trusts from 30 January 2021 and to new trusts. Please ensure that your advisors are fully explaining the consequences of modifying any of the following terms. The trustee must:
Under the new rules all trustees have a positive duty to inform every beneficiary they are a beneficiary of the Trust. They must be informed of the names and contact details of the trustees, whether there are any changes to the trustees, and of their rights to request trust information. This is a very significant change as the settlors may have wished for the trust information (like existence of it, assets in it and distribution terms etc) remain confidential from the beneficiaries due to family dynamics. All those trusts will have to be amended if the Settlors continue to wish for the information to remain confidential, instead opting for it to be in their Will instead.
Disclosure of Trust InformationThis is defined as information regarding the terms of the Trust (i.e. the deed of trust and all amendments), the administration of the trust and the trust property but does not include trustee decisions. There is a presumption towards disclosure to beneficiaries unless there is exceptional circumstances and this is following modern common law principles.
Increase to the Trust PeriodThe law changes revoke the Perpetuities Act and increases the trust period from 80 years to 125 years.
Duty to hold documentsA significant amendment clarifies for trustees what documents they must hold. Often trust documents are held by just one trustee, or by the trust’s lawyers or accountants. The new Act provides that each trustee must keep the following documents, so far as it is reasonable, and pass them on to at least one continuing or replacement trustee when they stop being a trustee. There is a technological solution to this - eg a shared drive etc that may solve this issue but we can advise when you're ready. These are the documents that must be held :
Exemption and indemnity clausesFrom 30 January 2021, the trust deed can no longer limit trustees’ liability for breach of trust arising from dishonesty, wilful misconduct or gross negligence (rather than ‘ordinary’ negligence), nor can trustees be indemnified out of trust property for such breaches. If there is a clause in your trust deed that tries to do this, the clause will be invalid. This applies to existing trusts, as well as new trusts, so we encourage you to look at your exclusion and indemnity clauses to make sure that they comply with the new legislation. We can assist you with this if you have concerns.
In deciding whether a trustee has been grossly negligence, the factors that the Courts may consider includes:
These changes have the potential to affect a significant number of trusts and trustees. Although the threshold for gross negligence has been set very high, it is important that trustees are aware of changes in their exposure to liability.
What are the practical implications to existing trusts you need to think about?
For existing trusts, the deed of trust and trust structure should be comprehensively reviewed, and varied if necessary, for the following:
Do you really need a trust? There are a lot of trusts in New Zealand that are really not required and the changes to New Zealand’s trust law is likely to be a good reason for trusts to be wound-up. As a start please call to have a thorough discussion / debate of why's, what's, when's, who's of your trust. If the conclusion of the debate is to wind up, then we proceed with winding up, otherwise,
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