The Trusts Act 2019 – Now in force
The Trusts Act 2019 (Act) came into force on 30 January 2021 and now is the time for clients to be reviewing their trust, if they have not done so already.
Previous editions of this newsletter have outlined that the Act was introduced to modernise and clarify the law governing trusts in New Zealand.
The Act makes a number of key changes, including: codifying the duties which apply to trustees, extending the maximum life of a trust from 80 to 125 years, and introducing new requirements for record-keeping and disclosure of information to beneficiaries.
Understanding trustee duties and obligations under the Act
If you are a trustee of a trust, it is important that you understand the duties and obligations you are now subject to and understand the eﬀect that the Act may have on the operation of the trust.
The Act imposes five mandatory duties which cannot be excluded or modified by a trust deed. These are:
- To know the terms of the trust
- To act in accordance with the terms of the trust
- To act honestly and in good faith
- To act for the benefit of the beneficiaries
- To exercise the trustee powers for a proper purpose The Act includes a further ten default duties which apply unless modified or excluded by the terms of a trust deed. These duties include a duty to invest prudently, a duty not to exercise power for a trustee’s own benefit, a duty to avoid conflicts of interest, a duty to act for no reward, and a duty to act unanimously.
We are assisting a number of clients with reviewing their trust aﬀairs and have encountered a number of issues in light of these changes including situations where:
- trust assets can no longer be validly applied for the benefit of trustee-beneficiaries who had originally settled assets on the trust;
- the terms of the trust deed do not allow for the remuneration of professional trustees or trustee companies; and
- the manner and particulars of the investment of trust assets would potentially expose the trustees to liability.
Depending on the terms of the particular trust deed, it maybe that a straightforward deed of variation can be prepared to remedy such issues. In other situations, where there is no power to vary the trust, the issues can be more problematic.
Understanding the disclosure of trust information obligations
The Act imposes new obligations on trustees relating to the management and disclosure of trust information. It also sets out what information trustees must keep and the duration such documents must be kept for.
The Act seeks to keep beneficiaries informed and to provide them with the means by which to monitor the actions of trustees and to ensure that trusts are being properly managed.
The process of disclosing information also includes a requirement for trustees to directly notify all qualifying beneficiaries aged 18 and older, or the representatives of minor beneficiaries, of the fact that they are beneficiaries. Trustees may decline to provide information to beneficiaries only after they have considered both their general obligation to provide information, a series of factors relating to the nature of the information, and the practicalities of restricting that information.
The Act provides a 12 month timeframe for compliance with the obligation to disclose basic trust information but were commend that you review the list of beneficiaries in your trust deed as soon as possible. Particularly for trust deeds with extensive lists of beneficiaries, excluding certain beneficiaries by deed can make compliance with the disclosure obligations more feasible, if such exclusion is permitted by the specific terms of the trust deed in question and it is appropriate to do so.
Given the changes now in force with the commencement of the Act, we recommend consulting your lawyer to undertake a review of your trust aﬀairs, to ensure that your trust remains fit for purpose under the new regime.
PDF version: The Trusts Act 2019 – Now in force
This article was included in Edition 4 of our Rural and agribusiness newsletter – Rural Autumn 2021 which you can read here