The trust landscape in New Zealand will change significantly from 30 January 2021 following the introduction of the Trusts Act 2019 (“the Act”).
The intention of the Act
The purposes of the Act include making the administration of trusts more transparent for beneficiaries and imposing statutory duties and liabilities on trustees. Commentators suggest that the reforms may cause some trustees to give up their roles. Furthermore, some settlors or trustees may decide to wind up their trusts.
What you need to know
The Act imposes obligations on trustees to keep “core” trust documents. These are a comprehensive list of documents and information relating to the trust. It is possible that many trusts, particularly older ones, do not have a complete set of trust records somewhere. This needs to be rectified by 30 January 2021 to avoid being in breach of the Act.
Trustees will be obliged to give “basic trust information” to every beneficiary. This is defined in section 51 as:
- the fact that the person is a beneficiary of the trust;
- the name and contact details of the trustees;
- details of any retirements and appointments of trustees, along with updated contact information for those trustees;
- the fact that the beneficiary can request a copy of the terms of the trust or trust information.
Considerations
To decide whether or not to provide the beneficiary with copies of trust documents and more detailed information, the trustees must consider include the following issues:
- What is the likelihood of the beneficiary receiving trust property in the future?
- Is the information subject to personal or commercial confidentiality?
- At the time the trust was established, did the settlor intend for beneficiaries to be given information?
- The age and circumstances of each beneficiary;
- What will be the effect on the beneficiary of receiving the information?
- How will the trustees, other beneficiaries and third parties be affected by receiving the information?
- Will relationships within the family be affected?
Another important change introduced by the Act is a mechanism for beneficiaries to ask the Court to review the actions of the trustees. It is now possible for alternative dispute resolution and arbitration to be used to settle differences. Whereas previously, disputes had to be decided by the High Court.
Of further concern to trustees is the new liability of “gross negligence” introduced by the Act. It cannot be contracted out of.
A change that was expected and is welcomed is the abolition of the rule against perpetuities. The maximum life of a trust, as specified by the Act, will be 125 years.
What you might need to do
In the 13 or so months before the changes come into effect, trustees and settlors have a lot of work to do to ensure they hold all trust records and to consider whether changes need to be made to the trust deed.
For example, the pool of discretionary beneficiaries should be reviewed. Particularly if a settlor does not want certain beneficiaries to receive information about the trust. However, we understand that if a beneficiary already has a vested interest in the trust fund, removing them will not remove the obligation to provide them with trust information. Nor will it remove the right they have to request trust information.
In the New Year, we will be contacting the settlors and trustees of all trusts we work with. We will update them further about the changes and suggest a trust review to ensure compliance with the Act. It will be a good opportunity to make changes to trust arrangements if required. Also to reflect on the pool of beneficiaries.
