Trusts Acts 2019: Key features
What does the first major rewrite in Trustee legislation in over 60 years mean? The new Trusts Act 2019 came into force on 30 January 2021 and is the first major rewrite in Trustee legislation in over 60 years.
The Trusts Act is intended to make Trust law more understandable for all New Zealanders and codifies the obligations of Trustees and rights of beneficiaries.
Two of the changes to the legislation that will impact most Trustees are that:
(a) All Trustees must be familiar with their obligations and duties; and
(b) Beneficiaries are to be provided with Basic Trust Information, without needing to ask.
It is important that Trustees are aware of these duties and obligations and take the appropriate advice when required.
The Trusts Act will be of help to Trustees, as its modern approach clearly sets out the principles and duties of Trustees and separates these duties into two areas being ‘Mandatory Trustee duties’ and ‘Default Trustee duties.’
Mandatory duties always apply and are unable to be excluded or modified. However, Default duties can be modified or excluded.
The Mandatory duties placed on Trustees are:
(a) Duty to know the terms of the Trust;
(b) Duty to act in accordance with the terms of the Trust;
(c) Duty to act honestly and in good faith;
(d) Duty to act for the benefit of beneficiaries or to further the permitted purpose of the Trust; and
(e) Duty to exercise powers for a proper purpose.
The Default duties that may be modified or excluded are:
(a) General duty of care;
(b) Duty to invest prudently;
(c) Duty not to exercise power for own benefit;
(d) Duty to consider exercise of power;
(e) Duty not to bind or commit Trustees to future exercise of discretions;
(f) Duty to avoid conflict of interest;
(g) Duty to act impartially;
(h) Duty not to profit;
(i) Duty to act for no reward; and
(j) Duty to act unanimously.
Beneficiaries’ Rights to Information
The Trusts Act now sets out the information Trustees are obliged to retain, and this includes the Trust Deed, any variations to the Trust, records that identify the assets and liabilities of the Trust and other important Trust information.
This obligation to retain important Trust information, is an essential element for the obligation Trustees now have to proactively provide Beneficiaries with ‘Basic Trust Information.’
It is important to be aware that the primary motive of this part of the legislation is to provide Beneficiaries with sufficient information to hold the Trustees accountable.
The Trusts Act defines Basic Trust Information as follows:
(a) The fact that the person is a Beneficiary of the Trust;
(b) The name and contact details of the Trustees;
(c) Confirmation when there has been a change in Trustee; and
(d) The right of the Beneficiary to request a copy of the Trust Deed or Trust information.
The Trusts Act also includes a number of factors to guide Trustees with respect to how to decide whether to provide Basic Trust Information, and how to decide what information to disclose, in the event a beneficiary requests further information.
The obligations to advise Basic Trust Information and to provide further information on request are on-going obligations.
Other Changes to the Trusts Act
As noted previously, this has been the largest change in Trustee legislation in over 60 years. However, some of the more relevant changes to the legislation include:
(a) Age of Majority – the definition of an adult has changed from 20 to 18 years of age;
(b) Exemption and Indemnity Clauses – the Trusts Act places restrictions on indemnity clauses. Where a Trustee is dishonest, demonstrates wilful misconduct or is grossly negligent, a Trustee cannot rely on an exclusion from liability under the indemnity clause;
(c) Life of a Trust – for new Trusts and potentially for existing Trusts, Trusts can now last for 125 years, subject to the terms of the Trust Deed;
(d) Trustee Powers – the Trusts Act confirms that a Trustee has all the powers necessary to carry out the Trust and to manage the Trust property, subject to the terms of the Trust Deed; and
(e) Court Powers – the High Court has wide powers under the Act including the power to review a Trustee’s conduct.
If you have established a Trust, you should be now reviewing your reasons for establishing the Trust and to determine if they are still valid and in alignment with the Trust structure.
If you are a Trustee, you need to fully understand your obligations as a Trustee and the actions you need to take on an ongoing basis to meet your duties and compliance requirements.
The information in this article is of a general nature only and does not constitute legal advice. Tavendale and Partners do not accept any liability for any reliance placed on the information contained in this article and shall not be liable to you or anyone else for doing something, or omitting to do something, on the information provided above.