Trusts Act 2019
Trust Law in New Zealand is finally getting the upgrade it needs after more than 60 years have passed since the Trustee Act 1956 was enacted. On 30 January 2021, the Trusts Act 2019 will replace the 1956 Act, triggering a review of the estimated 300,000-500,000 trusts in New Zealand. The purpose of the Trusts Act 2019 is to restate and reform current New Zealand trust law to make it more accessible to the general public. The intention is to provide clear guidance for trustees and beneficiaries and make it easier to resolve disputes. If you are a settlor, trustee, or a beneficiary of any trust (including a charitable trust) there are some important things you need to know.
The new Act clearly states the mandatory duties that all trustees must be aware of and act in accordance with. There is no provision for amending or excluding mandatory duties. Although these duties already exist, many of them are only understood by a minority of persons due to the complex drafting of the Trustee Act 1956.
Alongside the mandatory duties, there are default duties that will apply to all trusts (existing and new) unless they are specifically modified or excluded within the trust deed. This is important as there are a number of default duties that are commonly not adhered to by trustees, such as the duty to invest prudently, act for no reward, and to act impartially. Trust deeds may need to be updated to exclude or modify relevant default duties to ensure that trustees are not in breach of trust by, for example, investing all of the trust fund in one property.
Further, where default duties are modified or excluded, paid advisors in the creation of the trust deed must ensure that the consequences of such changes are fully understood by the settlors and/or trustees of the trust.
The Act also provides clearer guidance around what documents need to be kept by trustees for the duration of their trusteeship. Trustees must be aware of their obligations and ensure core documents are kept – this includes documents like the trust deed and any variations, appointment/removal of trustees, and financial statements.
If you are a beneficiary of a trust, you are entitled to basic trust information to keep trustees accountable for acting in your best interests. Beneficiaries are able to request further trust information, however there are a number of factors trustees must take into consideration before supplying or refusing to supply this information.
Trustees are currently prevented from limiting their liability arising from dishonesty or wilful misconduct. The Act extends this to include liability arising from gross negligence. Section 44 of the Act provides some guidance on what will constitute gross negligence.
Delegation of Powers
A trustee can delegate its power to a third party in the case of temporary lack of mental capacity or temporary inability to be contacted, as well as the current position under the Trustee Act 1956 regarding lack of physical capacity and being overseas.
Due to the impending law changes, it is critical that if you have a trust, you come and see your lawyer to ensure that the current terms of the trust deed do not breach the new Trusts Act. We expect that as a minimum, trustees will need to instruct their lawyers to review their trust documents. For those that have more complicated asset planning arrangements, it is likely that lawyers, accountants and financial advisors will need to work together to ensure that all aspects of their clients’ asset planning arrangements are compliant.
We recommend that you start the review process sooner rather than later. Our Team is happy to assist with a review of your trust documents and/or any queries you may have.
Natalie is a Senior Solicitor in our Asset Planning Team and can be contacted on 07 958 9435.
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