Trusts Act 2019 – Coming to you soon!

In this month’s article, I summarise and highlight some of the key changes in trust law that will be brought about when the new Trusts Act 2019 (“the Act”) comes into force on the 31 January 2021. The law reform is intended to simplify and improve transparency of trust law in New Zealand, as well as make trust law more accessible to the public. Many people in New Zealand use trusts as a primary form of asset protection, including those in the construction industry.

Disclosure of information

Many of the changes to the law of trusts are aimed at strengthening the ability for beneficiaries to hold trustees to account. The Act creates a presumption that a trustee must disclose basic trust information to every beneficiary and further trust information if requested by beneficiaries. Where a beneficiary is a minor, or who lacks capacity, the information must be given to a parent, guardian, attorney, or property manager.

“Basic trust information” includes:

  • The fact that a person is a beneficiary;

  • The name and contact details of a trustee;

  • The occurrence of, and details about, any change to the trusteeship; and

  • The right to request a copy of the terms of trust and trust information. 

“Trust information” includes information about the terms of the trust, administration of the trust, and the trust property, that is reasonably necessary for the beneficiary to have the trust enforced. There are a range of factors that must be considered in deciding whether information can be withheld, which are set out at section 53 of the Act.

Exemption and indemnity clauses

Under the new Act, it is made clear that trust deeds cannot limit a trustee’s liability for dishonesty, wilful misconduct, or gross negligence.  Trustees will not be able to rely on broad indemnity clauses, however, if the terms of the trust are properly drafted there may still be protection available for ordinary negligence. For the asset protection provided by a trust to be upheld, it is important that the meaning and effect of any limitation and indemnity clauses are understood.

Appointment and removal of trustees

The new Act aims to minimise the need for application to the court in relation to the appointment and removal of trustees. There are specific provisions for the removal, retirement, and replacement of a trustee, and when a trustee has died, as well as prescribing that appointment of a trustee must be in writing and in accordance with the formalities prescribed in the trust deed.

Retention of trust information

Extensive requirements in terms of keeping trust documents are imposed by the new Act. One trustee must hold a full set of trust documents, and each other trustee must hold at least the terms of the trust and any variation to those terms. A full set of trust documents includes the following:

  • Documents setting out the terms of the trust, or variations to those terms;

  • Records of trust property;

  • Records of trustee decisions;

  • Contracts;

  • Accounts & Financial statements;

  • Appointment, removal and discharge of trustees documentation;

  • Letters of wishes by settlor;

  • And other administration documents.

Mandatory and default trustee duties

The new Act will classify trustee duties into either “mandatory” or “default”. Mandatory duties must be performed and cannot be modified or excluded by any terms of the trust, whereas default duties are able to be modified or excluded by the terms of the trust.

Summary

In order for the asset protection provided by trusts not to be undermined, it is important that the changes to trust law are well considered by those who have trusts. The disclosure of information to beneficiaries and retention of trust information are likely to have the widest impact. Any changes made to trust structures in light of this reform need to be made prior to 31 January 2021.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. Barristers / Solicitors to anyone who relies on the information contained in this article. All copyright in this article is retained by TM Bates & Co.