Legal update on Trusts - changes are afoot
Placing assets in a trust is key for many of our clients’ plans to protect and grow their future wealth. Therefore, we’d like to bring you up to speed with our thinking on recent developments around trust law in New Zealand, particularly the Trusts Bill which is progressing through Parliament.
This new Bill will replace the existing Trustee Act 1956 and is set to be the first notable change to New Zealand’s trust law in over 60 years. It aims to make trust law more accessible, defining core trust principles as well as essential obligations for trustees. When enacted, the Bill will apply to all express trusts (i.e. everyday trusts), including those already in existence, meaning significant implications for all trusts and trustees. By improving the public’s understanding of the trust law, the need for proper administration of trusts becomes clear.
The Bill introduces mandatory trustee duties to ensure the effective and professional management of trusts. If trustees do not comply with these duties, the integrity of the trust is likely to be undermined and the trustees may be exposed to liability.
We believe many trustees may need assistance in managing their future obligations and understanding their responsibilities.
The proposed mandatory duties of trustees 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 hold or deal with trust property, and otherwise act for the benefit of the beneficiaries of the trust or to further the permitted purpose of the trust; and
- To exercise the trustee’s powers for a proper purpose.
The Bill also includes requirements for managing trust information and disclosing it to beneficiaries (where appropriate). This ensures the beneficiaries are aware of their position, and have sufficient information to affirm trustees are fulfilling their duties. The Bill includes clarification of the specific powers of the High Court when dealing with trusts to assist with enforcement against trustees where necessary.
While the High Court maintains its inherent jurisdiction to ensure the proper administration of trusts, the clarification provided by the Bill places more emphasis on trustees to manage trusts to a higher standard.
Some of us are referencing these changes as a lifting of the bar in trusteeship and trust advice while some of us believe that these changes will simply make the bar visible and hold to account those that can’t reach it.
At Perpetual Guardian, we are seeing a real shift with trusteeships – accountability is becoming more apparent so there is no room to be passive. Many trust practitioners who aren’t quite on their game are either schooling up or looking to exit their trusts.
At Perpetual Guardian, we can either independently review an existing trust and offer advice as to whether it will stand the test of time, or alternatively work with legal and accounting firms on solutions for books of trusts.
We recently published a white paper for professionals – click here to view.
We will continue to keep you informed of changes in this important area in the coming months as the Bill transitions through Parliament.
Other Laws of interest
With a change of government, stage two of the Law Commission’s review on the Law of Trusts, which was to focus on statutory and corporate trustees, has been deferred.
In addition to making submissions on the Trusts Bill, we have also actively submitted on:
- Births, Deaths, Marriages and Relationship Registration Bill;
- Property (Relationships) Act 1976 review;
- Financial Services Legislation Amendment Bill; and
- End of Life Bill.