Clarity and Simplicity – The Trusts Act 2019
(8 July 2022)
New Zealand has a large number of trusts – up to 300,000 to 500,000 – so the impact of the new Trusts Act 2019, which replaces the Trustee Act 1956 and Perpetuities Act 1964, will affect many New Zealanders.
Before the Trusts Act 2019 (Act), the law relating to trusts had not been altered for 70 years. The new Act modernises and improves trust law in New Zealand and applies to all trusts, whether pre-existing or created on or after the 30 January 2021 when the new Act came into force.
What is the Trusts Act 2019 about?
The Act aims to make trust law more accessible and clarify and simplify the core trust principles and essential obligations of trustees. In the past, a large body of trust law came from the courts and therefore was not easily accessible to trustees. The Act has clarified basic concepts from the common law into legislation (such as the requirement that ownership of property is transferred to a trustee) while retaining the court’s ability to evolve trust law through case law. This means that while the Act does organise a good body of trust law, it will co-exist with relevant rules in equity and common law.
Efficient administration of trusts and reducing the need for time in court are important goals of the Act. These goals are supported in the Act by including flexible trustee powers, clear rules about appointing a special trust advisor and the delegation of trustee powers, options for removing and appointing trustees without having to go to court, clear rules on changing and closing trusts, and provisions to support alternative dispute resolution.
How might the Trusts Act impact you?
The Act sets out that every person or court performing a function or duty, or exercising a power under the Act must have regard for the principles that (a) a trust should be administered in a way that is consistent with its terms and objectives and (b) in a way that avoids unnecessary cost and complexity.
The underlying law and basic rules of trusts have remained largely the same. However, under the new Act, beneficiaries have more rights and protections. In contrast, trustees of family trusts have more responsibility and prescriptive requirements, i.e., trustees need to be actively involved in the administration of the trust and proactively disclose information in some instances.
What are my duties as a trustee?
Trustees are under “mandatory duties,” which apply to all trusts. Trustees must 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 beneficiaries or a further permitted purpose and exercise their powers for a proper purpose.
“Default duties” also apply to trustees but can be modified or excluded by the trust.
These duties include:
exercising skill and care that is reasonable in all circumstances;
using appropriate powers to invest trust property with care and skill expected of a business person dealing with someone else’s property;
not exercising a power directly or indirectly for the trustee’s own benefit;
actively and regularly considering whether they should be exercising their powers as a trustee;
not binding or committing trustees to a future exercise or non-exercise of discretion;
avoiding conflict between the trustee’s interests and those of the beneficiaries;
acting impartially in relation to beneficiaries;
not making a profit from acting as a trustee;
not taking any reward for acting as a trustee;
acting in agreement with all trustees if there is more than one;
Trustees must also hold certain documents relating to the trust. All trustees must have a copy of the trust deed, including any documents containing the terms of the trust and any variation made to the trust deed. At least one trustee needs to hold records of the trust property, any trustee decisions, any written contracts, any accounting records and financial statements, any documents that appoint, remove or discharge trustees, any letters or memorandum of wishes from the settlor, any other documents necessary for the administration of the trust and any of these aforementioned documents held by former trustees.
Basic trust information should be provided to beneficiaries, such as the fact that they are a beneficiary, the name and contact details of the trustee/s, details of all appointments, removals and retirements of trustees, and their right to request a copy of the terms of the trust or other trust information. This presumption of disclosure of information is, however, subject to the trustee considering factors under s 53 of the Act, which includes the sensitivity of certain trust information, the age and circumstances of the beneficiaries and the relationships within the family.
If you have any questions or concerns regarding a trust, please contact our Trusts Team at Fletcher Vautier Moore Lawyers at (03) 548 1469.
This article does not constitute legal advice, and Fletcher Vautier Moore Lawyers accepts no responsibility for reliance on the content of this article. Please contact Fletcher Vautier Moore Lawyers if you have any questions about how this article applies to you.
