Trust Law Shake Up
Introduction
After remaining relatively static for decades, trust law was overhauled by the Trusts Act 2019, which came into force in early 2021. With New Zealand having the highest number of trusts per capita in the world, these changes are sure to have wide-reaching impacts.
Trustee Duties
The Act makes clear what responsibilities trustees have to beneficiaries of the trust – split into mandatory duties and default duties.
Trustees must follow mandatory duties regardless of how the trust is set up. These duties include knowing and acting in accordance with the terms of the trust, acting honestly and in good faith, and acting for the benefit of beneficiaries.
By contrast, default duties may not need to be followed if the trust deed overrides or opts-out of these duties. It is important that trustees carefully consider the impact of these default duties when setting up the trust and whether the trust deed should modify or exclude these duties. Without any modification, trustees may be prevented from investing the trust property aggressively and may be unable to give preferential treatment to a deserving beneficiary.
Trust Information
The Act has clarified previously unclear law regarding trust information.
Trustees are now required to keep detailed records relating to the trust – including records of the trust property, record of trustee decisions made, and the trust deed and any subsequent variations.
Trustees are also required to disclose basic trust information to beneficiaries – including that the person is a beneficiary of the trust and that they may request the trust deed.
Upon request, trustees must then disclose additional information the beneficiary seeks, unless they consider that the information should not be disclosed after following a procedure set out in the Act.
Indemnities
The Act has narrowed the ability for trustees to indemnify themselves against the trust suffering losses due to the trustees’ breach of trust.
While trustees could previously exclude liability, even for serious breaches, since the inception of the Act trustees are only able to exclude liability if the breach does not constitute dishonesty, wilful misconduct, or gross negligence.
How do the changes affect me?
If you are intending to set up a new trust, you should carefully structure the trust deed in a way which does not run afoul of the new Trusts Act.
If you are a trustee of an existing trust, you will likely need to review and update how you operate to comply with the more onerous requirements of the new regime.
If you are a beneficiary of a trust, or you think you may be a beneficiary, you should review the additional abilities you now have under the new Act and consider whether to exercise any of them.
Get in touch
If you would like to discuss the changes and how they may affect you further, please do not hesitate to get in touch with our experienced and professional team.
