New Zealand’s trust law has been updated and improved for the first time in more than 60 years. The new Trust legislation was passed on 30 July 2019 and will come into force in 18 months’ time. The 18-month timeframe is designed to allow trustees the necessary time to ensure that the trust will be compliant with the new legislation.
The new law will introduce some significant changes which will have implications for all trusts in New Zealand.
The key features of the proposed new law are:
- Mandatory and Default duties for trustees
- Trustees will be required to disclose information about the trust to all beneficiaries
- More flexible trustee powers, so that trustees can manage and invest trust property appropriately
- Provisions to support cost-effective establishment and administration of trusts
- Options for removing and appointing trustees without going to court
- The maximum duration of trusts will become 125 years ( the current rule sets the maximum life of a trust at 80 years).
- Certain trust disputes may be referred to alternative dispute resolution such as arbitration or mediation
More On Some Key Features…
Mandatory and Default Trustee Duties and Disclosure of Information to Beneficiaries
Trustees will have Mandatory duties and it will not be possible to exclude or contract out of these in the trust deed. The mandatory duties will be to:
- 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 to further the trust’s purpose; and
- Exercise their powers for a proper purpose.
In addition to the Mandatory duties, the trustees will be required to comply with Default duties unless they are modified by the trust deed. The Default duties include:
- General duty of care
- To invest prudently
- Not to exercise power for own benefit
- To consider “actively and regularly” whether the trustee should exercise their power
- Not to bind trustees to future exercise of discretion
- To avoid conflict of interests
- To be impartial
- To act unanimously and for no reward
- Not to profit from the trusteeship
The new law will also specify core documents that trustees must keep, such as the trust deed, variation documents, records of trust property and trustee decision-making, accounting records and financial statements, and documents appointing, removing and discharging trustees. Importantly, trustees will need to hold onto these documents throughout their trusteeship, and then pass them onto a current trustee when they retire or stand down.
A major change for trustees is that they will be required to provide beneficiaries with basic information about the trust. Basic information is defined as:
- The fact that a person is a beneficiary of the trust;
- The name and contact details of the trustee/s;
- The occurrence, and details of, each appointment, removal and retirement of a trustee as it occurs; and
- The right of the beneficiary to request a copy of the trust deed and trust information.
Trustees will also have to give information to beneficiaries on request.
The new law will set out a number of things trustees should consider when deciding whether or not to give some or all of the requested information and give guidance about how to withhold information from beneficiaries. It will allow the trustees to ask for payment from the requesting beneficiary to cover the reasonable costs of providing information.
Flexible Trustee Powers
The new law will make it clear that trustees have general powers to manage the trust property and carry out the trust, as well as specific powers such as the ability to invest and use trust property for beneficiaries’ welfare. It will also enable trustees to delegate their powers and functions in specified circumstances. The aim of this section of the new law is to give trustees clear, useful and flexible powers so that they have a good understanding of their legal position.
Removing and Appointing Trustees
The new law will provide trustees with instructions and clear guidance on appointing and removing trustees without needing to go to Court to do so. It will set out:
- Who can remove and appoint trustees;
- Who may be appointed as a trustee;
- How a trustee accepts or rejects appointment;
- How a trustee retires;
- What happens if a trustee dies;
- How a trustee is removed or replaced; and
- Transferring trust property from old to new trustees.
These changes will make it clearer and easier for trustees dealing with changing trust personnel, especially where the changes are straightforward and uncontested, removing the cost and complexity of needing to apply to the Court to change a trustee appointment.
Alternative Dispute Resolution
The new law will give trustees the power to refer specific trust matters to an Alternative Dispute Resolution (“ADR”) process such as mediation or arbitration, to facilitate resolution. The trust matters able to be dealt with through ADR will be:
- A trust-related dispute between a trustee and a beneficiary, a trustee and a third party, or between two or more trustees, that may give rise to a legal proceeding; or
- A legal proceeding brought by or against a trustee in relation to the trust.
The aim of this section of the new law is to have disputes dealt with in a more cost-effective and timely manner than if they were taken to court at the outset, which should reduce cost and complexity for many trusts.
What Does This Mean for my Trust?
Trustees should make sure that they are aware of the coming changes and start planning for them now. If you have any questions or need some specific advice contact our office by calling 03 307 6455 or email us at Info@myca.co.nz, we are happy to help.
The information in this article is general in nature and should not replace professional advice.