Do you have a trust? If so, there are some significant impending changes to New Zealand trust law that you should be aware of.
The Trusts Act 2019 comes into effect on 30 January 2021. The new act is a complete revamp of the current trust law and aims to update, modernise and simplify trust law in New Zealand.
It is important that all trustees and beneficiaries understand the new law and what these changes may mean for the trusts they are involved in (or contemplating becoming involved in later down the track).
The key changes are summarised below.
The Trusts Act 2019 imposes mandatory and default duties on all trustees.
- Know the terms of the trust
- Act in accordance with the terms of the trust
- Act honestly and in good faith
- Act for the benefit of trust beneficiaries or the agreed purpose of the trust
- Exercise your powers for their proper purpose
- General duty of care
- Invest the trust’s assets prudently
- Don’t exercise your powers for your own benefit
- Actively and regularly consider whether you should be exercising your powers
- Don’t bind or commit trustees to exercising their powers in a certain way in the future
- Avoid conflict of interest
- Act impartially
- Don’t profit personally from the trust
- Act for no reward
- Act unanimously
The mandatory duties must be complied with by all trustees, with no exceptions. The default duties, on the other hand, can be contracted out of in the terms of the trust deed (i.e. trustees don’t need to comply with these duties if the trust deed says otherwise).
Disclosure to beneficiaries
The new act requires increased transparency from trustees, by obliging them to disclose certain information to all beneficiaries.
Each beneficiary must be advised that they are a beneficiary of the trust. They must also be provided with the following information:
- The name and contact details of each trustee
- Details of any trustee removals, retirements or appointments as they occur
- Their right to request a copy of the terms of the trust or other trust information
The new act presumes that the basic information outlined above will be made available to all beneficiaries. However, the trustees can decide that this presumption does not apply and may choose to contract out of it in this instance.
Previously, beneficiaries did not have the right to request a copy of the terms of the trust or other trust information (for example, financial statements and gifting documentation), but the new act presumes that trustees will make this information available upon request. Again, the trustees can decide that this presumption does not apply.
The new act contains a list of factors which trustees must take into account when deciding whether these presumptions apply to their trust. These factors include the age and circumstances of the beneficiary and the effect the information will have on the beneficiary.
The Trusts Act 2019 imposes stricter record-keeping, with an obligation on one trustee to hold all core trust documentation (including all core documentation from the past). This documentation includes:
- The trust deed
- Details of trust assets and liabilities
- Financial statements
- Records of all trustee decisions
The new act extends the maximum duration of a trust from 80 years to 125 years.
These changes don’t come into effect until 30 January 2021, allowing time for existing trusts to become compliant with the new law. However, in the period preceding this date, every new trust, as well as those being reviewed, wound up or varied, should be made in accordance with the Trusts Act 2019.
If you are involved in a trust or thinking of establishing one and would like to find out how the Trusts Act 2019 affects your rights and obligations, please get in touch with Hannah or contact reception.
Note: This post is brief and general in nature. You should not treat it as legal advice and should seek professional advice before taking any action in relation to the matters dealt with in this post. Armstrong Murray accepts no liability for losses suffered by any person or organisation who may rely directly or indirectly on this post.