The new Trusts Act 2019 (“Act”) came into effect on 30 January 2021. Under the new Act “the fundamental duty of the trustees is to be accountable to the beneficiaries” to ensure that beneficiaries have sufficient information to enable the terms of the trust and the trustee’s duties to be enforced against the trustees”.
Why do we need to review the current trust deeds?
- To ensure that current trusts are“fit for purpose” under the NewAct
- Current rules of common law andequity apply as the New Act isnot a code
- The Supreme court decision ofErceg v Erceg  NZSC 28 in2017 (“Erceg”) still provides the“model” especially on disclosure.
What do we need to consider?
- The New Act will apply to allexisting trusts;
- The rule against perpetuities willbe abolished, and the newmaximum term will be 125 years;
- Certain mandatory duties cannotbe modified (sections 22-27);
- Default duties must be performedunless modified or excluded(sections 28-39);
- Mandatory and default dutiesessentially restate the existing law;
- Section 39 requires a paidadvisor to alert the settlor tochanges to default duties;
- Sections 40 and 41 provide that“gross negligence” cannot beexcluded;
- Section 43(1) requires a paidadviser to advise a settlor of anindemnity clause, and failure todo so may nullify the indemnityfor a trustee advisor (section43(3));
- Section 45 requires each trusteeto keep core documents (10items);
- Currently, many trusts have alimited ability to amend its terms.The only option may be toresettle into new trust/s.However, resettling a trust maytrigger tax liabilities.
GIVING INFORMATION TO BENEFICIARIES
All beneficiaries are entitled to certain information. “Beneficiary” is broadly defined in the Act and includes all discretionary beneficiaries.
Section 51 provides that there is a presumption that a trustee must make available to every beneficiary ‘basic trust information’ which includes the fact that a person is a beneficiary of the trust and that a beneficiary has to be told of their right to request trust information.
Yes, it is a very broad definition and will include information like financial statements, and details of distributions, when and to whom.
Erceg had already held that beneficiaries are entitled to be provided with copies of trust documents, demonstrating how the trust has been administered, and what has become of the trust property, without the need for a request for such information.
The common law position is still relevant because the Act states
(s 5(8)) that it is not an exhaustive code of the law relating to express trusts.
In Erceg, the obligation of a trustee to administer the trust in accordance with the trust deed, and the duty to account to beneficiaries was expressed by the court as being the “starting point”. The court however ruled that the trustees need not provide the reasons for their decisions.
The notion of a presumption of disclosure is now codified in sections 51 and 52. Section 53 sets out in detail the 13 factors that the trustees must consider when deciding whether those presumptions apply.
Whilst ‘independent’ (usually a professional) trustees may have taken a ‘rubber stamping’ approach to their duties in the past this approach will now become ‘illegal’ (in breach of the Act).
It is suggested that settlors and trustees give careful consideration to the number and range of beneficiaries included in a Trust Deed. Where a settlor (or Appointer) has the right/ability to appoint and remove beneficiaries, there is no real need to name a wide range of beneficiaries.
Trustees with no or little appetite for disclosure to beneficiaries may well be considering whether the trust should be wound up to avoid this problem. However that may well raise the possibility of a challenge by other beneficiaries arguing it is a ‘fraud on a power’ or alleging conflict issues.
WHAT SHOULD YOU DO NOW?
Think carefully about whether your current trust is still serving the purposes for which it was originally settled.
Some trust deeds are able to be varied to modify the effect of some of the changes imposed by the new Act but generally speaking, many aren’t. Alternatively, a new trust could be established which includes necessary modifications and assets from the existing trust resettled (transferred) into it. There may be tax implications in some cases so care is required.
If you would like further information or an analysis of how the changes apply to your trust deed, please let us know.
Published by Brett Carpenter.
We will need to carefully review your existing trust and make sure that all required changes are done as soon as possible.
Queen City Law are trust law experts. We are very well placed to act for, and deal with, any trust related matters.
If you wish to discuss in more details with our team, please contact us on:
John Jon (Senior Associate)
021558290 – John@qcl.co.nz
Tom Huang (Associate)
021659502 – Tom@qcl.co.nz
(for any Chinese speaking clients)
Brett Carpenter (Consultant)
021666047 – Brett@qcl.co.nz