27 Apr 2016

Newsletter | April 2016 | Legislative Update

Legislation changes are expected in the areas of Trust law and Enduring Powers of Attorney.
Legislation changes are expected in the areas of Trust law and Enduring Powers of Attorney.


The current law regulating Family Trusts in New Zealand (The Trustee Act) has been part of our legislation for 60 years and is well due for an update. It is a complex piece of legislation and does not reflect modern Trust practices. People say that in some places the Act is simply unreadable! Consequently, in 2009 the Law Commission commenced a very thorough review of our laws in this area, culminating in a report which was presented to the House of Representatives in September 2013. This report contained 51 recommendations to modernise and clarify Trust law. It highlights that, while Trusts are widely used in New Zealand, there is a widespread misunderstanding among New Zealanders as to exactly what a Trust is and the rules which relate to them. The Law Commission recommends new legislation, to be called simply the “Trusts Act”. It will modernise the law of Trusts, making it clearer and more user-friendly. It will apply to existing as well as new Trusts from the date it comes into force. The Government is yet to form a final view on all of the Law Commission’s recommendations and the timing of implementation will depend on other Government priorities. However, Perpetual Guardian welcomes any changes which make the laws in this area clearer and easier for individuals and businesses to understand.

Clayton vs. Clayton case

Following on from the Court of Appeal judgment, the Supreme Court has now released its judgments which have the potential to affect many New Zealand Trusts. The Claytons have settled out of court but the Supreme Court – because of wide public interest, issued its decision and the message is loud and clear. The Supreme Court decided that the Trust was not a sham and while the power to appoint and remove beneficiaries did not in itself constitute property under the Property (Relationships) Act it did hold that such power combined with other personal powers under a Trust Deed could amount to relationship property as the holder of all such powers is not constrained by any fiduciary duty when exercising the powers. The Court found that the value of the powers that Mr. Clayton held in relation to the Trust were equal to the value of the net assets of the Trust. Two distinct and clear points have emerged:

  • For a Trust to be effective there needs to be a clear delineation and transfer of powers from the individual; and,
  • For Trusts to be an effective mechanism in estate and relationship planning, it is strongly recommended that a section 21 Contracting out agreement (prenuptial agreement) be entered into, that may safeguard against claims made on Trust assets.

Enduring Powers of Attorney

Enduring Powers of Attorney (EPAs) are as essential as an up-to-date Will. The legislation governing their creation and use is the Protection of Personal and Property Rights Act 1988. Amendments are being made to this Act which are intended to make it easier and more affordable for people to set up EPAs, and increase understanding around how they work. It is intended that, in future, EPA forms will be written in plain language and will be easier to understand. Witnessing requirements will be simplified. Other amendments are more technical, but are all intended to improve and streamline the processes associated with their use. The amendments to the Act are expected to come into effect this year.

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Perpetual Guardian is a trading name of The New Zealand Guardian Trust Company Limited and Perpetual Trust Limited. For Authorised Financial Advisers, a disclosure statement is available upon request and free of charge.