Trust law changes 30 January 2021 – what the Trusts Act 2019 means for you
New Zealand law on trusts and their operation is changing. These law changes will take effect from 30 January 2021, when the Trusts Act 2019 comes into force. The new Act will repeal the Trustee Act 1956, under which most existing trusts have been settled.
If you haven’t already done so we recommend that trustees meet to familiarise and discuss the changes before the effective date.
The changes will apply to both existing and future trusts, and will affect those in the roles of settlors, trustees and beneficiaries. The changes are intended to simplify trust law and make it more accessible. Much of the law has formalised current best practice but there are a number of key changes:
1. Confirming and understanding the purpose of the trust
If you are already a settlor or trustee, now is the time to remind yourself of the purpose of the trust, and consider whether it is still fulfilling this purpose. Families, friendships, and circumstances can change. An outdated trust deed, or a trust that is no longer well administered, can create complications or be out of step with your current objectives. You need to ensure that your trust fits with your current circumstances. Alternatively, it may be a better option to wind up a trust that is no longer required or create a new trust that is better suited to your plans.
2. Mandatory trustee duties
- know their trust terms;
- act in accordance with those trust terms;
- act honestly and in good faith;
- act for the benefit of beneficiaries or the trust’s purpose; and
- exercise their powers for a proper purpose.
3. Default trustee duties
In addition to the mandatory duties, the Act creates a range of default duties that will also apply to trustees unless they are specifically excluded by the trust documents. These default duties are that trustees must:
- exercise reasonable skill and care;
- invest prudently;
- not exercise trustee powers for their own benefit;
- consider actively and regularly whether the trustee should be exercising one or more of the trustee’s powers;
- not bind trustees to a future exercise of discretion;
- avoid conflicts of interest;
- act impartially;
- not profit from their position;
- not act for reward; and
- act unanimously.
The removal of an incapacitated trustee is also subject to new requirements.
4. Provision of information to beneficiaries
Trustees also need to provide information to beneficiaries about the trust, the property or funds it holds, and the administration of the trust. This obligation does not extend to the provision of reasons for trustee decision-making but does highlight the increased focus on record-keeping that will be a part of the new framework. It may also mean that beneficiaries will be entitled to receive some information that trustees have traditionally kept private.
5. Record keeping
The Act provides that trustees have a duty to hold ‘core documents’. The term ‘core documents’ is defined in the Act to mean the trust deed, variations, trustee minutes, accounts and other important trust documents. These documents need to be held by at least one trustee but all trustees must hold a copy of the trust deed and variations. This is currently best practice but many trustees do not hold such documents, leaving all documents under the control of only one trustee or the trust’s professional advisors.
6. There is a limit on trustee indemnity and exclusion of liability clauses
As part of the increased focus on trustee duties, the ability to limit or exclude liability will also be narrowed. Liability cannot be excluded for trustee dishonesty, willful misconduct or gross negligence.
7. Lifespan of a trust increased to 125 years
The maximum life-span is changing from 80 to 125 years from the date a trust was created. This will not increase automatically for trusts already in existence, but can be varied, depending on the terms of the current trust deed.
8. The default age of majority is changing from 20 years to 18 years
This means unless you specify a different age in the trust deed (or your will) a person will be taken to have reached adulthood on turning 18 years old, rather than the present 20 years old.
Trustees need to be clear about the purpose of the trust, the terms of the trust deed, and the nature and value of trust owned assets and liabilities. They also need to be aware that record-keeping remains of central importance should a beneficiary ask for information, or if there is a future challenge to the validity of the trust or trustee decision-making.